Scientists were yesterday embroiled in an international row over genetically modified cotton after a study in China suggested for the first time that the crop was permanently damaging the environment and that insects were building up resistance to it.

The study by the Nanjing institute of environmental sciences, part of the Chinese government's environmental protection administration, draws together laboratory and field work undertaken by four scientific institutions in China over several years.

It suggests that GM cotton, which incorporates a gene isolated from the bacterium Bacillus thuringiensis (Bt), harms the natural parasitic enemies of the cotton bollworm, the pest that it is designed to control. It also indicates that populations of pests other than cotton bollworm had increased in Bt cotton fields and some had replaced it as primary pests.

However, the leading GM company Monsanto, which controls more than 80% of the Bt cotton grown worldwide, dismissed the research. The industry has always cited GM cotton as its biggest success, because it can increase yields by up to 60% and reduce the need for pesticides by 80%.

But worryingly for the industry, the scientists also found that the resistance of Bt cotton to bollworm decreased significantly over time. GM cotton, they said, will require increasing amounts of traditional chemicals to control pests within a few years.

The report, which was published by Greenpeace International, says bollworm control is no longer complete by the third and fourth generations of the pest, and control falls to 30% after 17 generations. The scientists concluded that Bt cotton would probably lose all its resistance to bollworm after being planted continuously for 8-10 years.

Zhu Xinquan, the chairman of the Chinese society of agro-biotechnology, said new GM organisms and products would benefit agriculture and other industries, but people should always beware of the long-term and underlying impacts on the environment.

China is the largest grower of GM cotton after the US, with about 1.5m hectares (3.7m acres) under cultivation, the great majority by small farmers. An estimated two thirds of the plantings are Monsanto cotton, the rest domestically developed strains. The Chinese government has heavily backed GM crop research and plans to quadruple budgets within three years.

Yesterday the report was dismissed by both US and other Chinese scientists. Monsanto said: "It lies outside the broad scientific view of Bt cotton as well as the practical experience by millions of farmers in eight countries where Bt cotton is growing. The report serves as another example of baseless claims made by anti-GM activists like Greenpeace."

The Chinese academy of sciences is understood to be preparing a paper for China's leadership that refutes the allegations in the Nanjing study, and chastises the state environment protection agency for working with Greenpeace. Its findings were also disputed by Professor Guo Sandui, the inventor of Chinese Bt cotton. "Greenpeace is absolutely ignorant about genetically modified cotton and doesn't know how to protect the environment," he said.

However, in India, the forum for biotechnology and food security, a collective of agricultural scientists, farmers and others, used the report to urge an inquiry into the role of Indian government's department of biotechnology in supporting applications by Monsanto to grow GM cotton.

The Indian government controversially authorised commercial plantings of GM cotton in April, following disputed environmental testing.