Online gambling companies that spend millions advertising in taxis and on the London Underground will face a government crackdown amid concerns that many break the law, according to a report in the Financial Times.

The offshore companies take bets from punters in the UK but, unlike land-based casinos, are allowed to advertise because they are outside the jurisdiction of UK law.

Problems arise because many of the casinos offer inducements which are forbidden, such as matching of initial stakes.

Tessa Jowell, Secretary of State for Culture, Media and Sport, will today announce that companies which break the law will be prosecuted.

Jowell and the Gambling Commission will write jointly to advertisers, publishers and internet casino operators spelling out the government's position on the interpretation of the law.

John Shepard, director of communications at online gaming site PartyGaming.com, said: " The Financial Times has made one error. It is not against the law to offer free entry.

"As far as advertising goes we are breaking no laws because everything we put out goes through our compliance team and is fully approved before it appears. I cannot comment on what other operators may be doing."

Meanwhile City stockbroking firm Seymour Pearce has talked down the impact of a crackdown in a recent report on online gambling.

"The precise ways in which gambling companies can advertise is under review by the Gambling Commission. The trend is therefore towards liberalisation for licensed operators and a 'clamp down' on unlicensed ones," the company said.

"The vast majority of operators obey the law, so current advertising campaigns are not under threat."