Tobacco giant Philip Morris today launched legal action against Australian laws forcing tobacco products to be sold in drab, plain packaging from late next year.

Australia's parliament has passed laws compelling cigarettes, pipe tobacco and cigars to be sold in plain olive packs from December 2012.

Tobacco export countries including Nicaragua, Dominican Republic and Ukraine have warned they may challenge under world trade rules, while tobacco companies including British American Tobacco and Imperial Tobacco, have said they may challenge the law in Australia's High Court.

Philip Morris said it had launched legal action that could trigger compensation claims worth billions of dollars.

"The Government has passed this legislation despite being unable to demonstrate that it will be effective at reducing smoking and has ignored the widespread concerns raised in Australia and internationally regarding the serious legal issues associated with plain packaging," Philip Morris spokeswoman Anne Edwards said in a statement.

The action is being brought by Philip Morris Asia Ltd, Hong Kong, the owner of the Australian affiliate, through a notice of arbitration under Australia's Bilateral Investment Treaty with Hong Kong.

The laws are being closely watched by governments considering similar moves in Europe, Canada and New Zealand, angering tobacco companies worried that they may set a global precedent and infringe on trademark rights.

The Himalayan nation of Bhutan banned the sale of tobacco outright earlier this year.

Australia's Health Minister Nicola Roxon, speaking after parliament's lower house approved laws already passed by the upper house Senate last week, demanded tobacco companies respect the will of the parliament.

"Plain packaging means that the glamour is gone from smoking and cigarettes are now exposed for what they are: killer products that destroy thousands of Australian families," Roxon told reporters.

Roxon said while the tobacco industry was fighting to protect its profits, the government was "fighting to protect lives".

The World Health Organisation in 2005 urged countries to consider plain packaging, and estimated more than 1 billion are regular smokers, 80 percent of them in poor countries.

Industry analysts say tobacco companies are worried that plain packaging could spread to important emerging markets like Brazil, Russia and Indonesia, and threaten growth there.

Legal experts have predicted both legal and WTO challenges to fail, as intellectual property rights agreements give governments the right to pass laws to protect public health.

Conservative opposition MPs, while backing the laws, urged Roxon to accept a three month moratorium on prosecutions and the enforcement of heavy fines for small tobacco sellers to give them time to adjust to the possible impact on sales.

Australia already bans tobacco advertising, smoking in public buildings and the public display of cigarettes in shops. In some states, it is illegal to smoke in a car if a child is a passenger.

Australia wants to cut the number of people who smoke from around 15 percent of the population to 10 percent by 2018. Health authorities say smoking kills 15,000 Australians each year with social and health costs of around $32 billion.

Australia's tobacco market generated total revenues of around $10 billion in 2009, up from $8.3 billion in 2008, although smoking generally has been in decline. Around 22 billion cigarettes are sold in the country each year.

Reuters