SEPA and the China Insurance Regulatory Commission (CIRC) would initially require firms dealing with high-risk chemical products to join the insurance scheme, along with petrochemical companies and those involved in hazardous waste disposal, Xinhua cited Pan as saying.

"Enterprises and industries having caused serious pollution accidents in recent years will be specially targeted," it quoted him as saying.

Xinhua said the programme aimed to prevent firms involved in big pollution incidents from going bankrupt because of clean-up and compensation costs, thereby cutting down on the need for government bailouts to pay victims.

"It, however, doesn't mean polluting companies can rest assured to pollute, as the insurance premium is in proportion to a company's pollution risks," it quoted Pan as saying.

China is fighting widespread pollution and environmental destruction, including a rash of major pollution incidents in recent years that have soiled the land, water and air.

In 2005, millions of residents of Harbin in the northeast of the country had their water taps shut off for weeks after an explosion at an industrial plant sent toxic chemicals flowing into the Songhua River.

Last week, a tanker truck carrying more than 30 tonnes of sulphuric acid crashed in the southwest of the country, spilling its load into a river. At the weekend, an oil pollution scare in the south cut off drinking water to 100,000 people.

Altogether, the country experienced 108 emergency environmental incidents last year, Xinhua said.

Pan said the scheme comes after a "green credit" policy launched last summer that tells banks not to lend to polluting and energy-guzzling firms -- a policy he conceded last week had met strong resistance from local governments, many of which profit from such industries.

(Reporting by Jason Subler; Editing by David Fogarty)