BP is facing legal action over allegations that it cornered the propane market in the United States to drive up prices.

US regulators claimed that the London-based group made profits of $20 million (£11 million) by buying up large amounts of propane in February 2004 and driving the price up by more than 40 per cent.

The Commodity Futures Trading Commission (CFTC) in the US said that BP traders - with the consent of senior management - bought "enormous quantities of propane" to establish a "dominant and controlling" position in the market and then withheld supplies from the market in order to drive prices higher.

Propane is used by about seven million households in the US to heat trailer and rural homes and fuel cookers. It is also heavily used by industry.

Details of the alleged scheme were outlined in a civil lawsuit filed in Illinois by the CFTC against BP Products North America on Wednesday.

BP denied any wrongdoing, but one former BP trader, 34-year-old Dennis Abbott, of Houston, has pleaded guilty in a federal district court in Washington to taking part in a conspiracy "to manipulate and corner the propane market".

Abbott, who has agreed to co-operate in a continuing criminal investigation being conducted by the FBI, faces up to five years in prison and a fine of $250,000 (£138,000).

BP spokesman Ronnie Chappell said "market manipulation did not occur" and that the company intended to fight the charges.

However, Mr Chappell said an internal investigation conducted by BP found that several employees had "failed to adhere to BP policies governing trading activities" and had been dismissed.

BP is also facing boycotts over alleged racial discrimination.