Documents seen by this newspaper show that the Food Standards Agency assured major manufacturers and retailers 10 days ago that it would not make them withdraw the rice - at the same time as it was telling the public it should not be allowed to go on sale.

The environmental group Friends of the Earth has already found GM material in two types of own-brand rice sold in Morrisons supermarkets - in direct contravention of food safety regulations - and believes the GM rice is likely to be widespread throughout Britain.

But the agency has not carried out its own tests for modified rice in products on the market, and has not instructed retailers to do so. It says that the rice is safe, but some scientists disagree.

Last night, Peter Ainsworth, the shadow Environment Secretary, described the agency's conduct as "a massive scandal" and said it "smelt of a cover-up". He said he would be asking for an official investigation into whether the agency had broken the law.

Legally, no GM material is allowed to go on sale in Britain or any other EU country. But last month the Bush administration admitted it had found a modified material, which had not even received safety clearance in the US, in long-grain rice intended for export.

The unauthorised rice, which is listed as LLRICE601, was developed by Bayer CropScience to tolerate weedkiller, and tested on US farms between 1998 and 2001. The company decided not to market it. Nevertheless it has turned up widely in US rice, possibly because pollen from the tested rice spread to conventional crops. The European Commission says that it has been found in 33 of 162 samples of rice imported from the US.

The EC last month banned any further imports unless they could be proved to be clear of the GM rice, and instructed governments to test products already on the market to make sure that they did not contain it.

The European health and consumer protection commissioner, Markos Kyprianou, said it should not be allowed to enter the food chain "in any circumstances".

Two big Swiss supermarket chains have already banned all US long-grain rice from sale.

The Food Standards Agency publicly announced that "the presence of this GM material in rice on sale in the UK is illegal under European food law", adding: "Food retailers are responsible for ensuring the food they sell does not contain unauthorised GM material."

But on 5 September, a senior agency official, Claire Baynton, privately met major retailers and food manufacturers. According to records of the meeting seen by The Independent on Sunday, she said the agency did not expect companies to trace products and withdraw them.

The agency says it told the companies at the meeting that it was their responsibility to ensure that the food they sold did not contain GM material, but that it would not "require" them to test for it or withdraw products if found.

It says that it has "not carried out tests of products on the market" and "has not issued any instructions to retailers" to do so. The agency says that modified rice does not present a safety concern and is advising people who may have US rice at home to continue to eat it. But some scientists say it could give cause for "concern over its potential allergenicity".

Friends of the Earth has found GM material in two samples of Morrisons American long-grain rice and American long-grain brown rice, although it was not able to verify that it was LLRICE601. Morrisons accepts that selling any GM rice is illegal. It cleared its shelves of the products "as a precautionary measure" immediately after being informed of the findings.