The Vietnamese army is playing a key role in smuggling wood from the jungles of Laos, a multi-million dollar activity that threatens millions of livelihoods, a new report said Thursday.

Hanoi denied the claim of the London-based Environmental Investigation Agency (EIA), which said its undercover operations revealed one of the biggest loggers in Laos to be a company owned by Vietnam's military.

Although Laos has some of the Mekong region's last intact tropical forests, its export ban on raw timber is "routinely flouted on a massive scale" to feed "ravenous" industries in Vietnam, China and Thailand, the EIA said.

"What is happening here is almost displaced deforestation. Vietnam is almost annexing swathes of Laos to feed its industry," Julian Newman, campaigns director of the EIA, said at the report's launch in Bangkok.

The group's undercover work focused on the army-owned Vietnamese Company of Economic Cooperation (COECCO), which it said sources most of its logs from Lao dam clearance sites.

"Widespread" corruption among the Lao government's forestry officials has enabled the timber smuggling, with 500,000 cubic metres, worth at least 150 million dollars, crossing the Laos-Vietnam border each year, the EIA said.

A spokeswoman for the foreign ministry in Hanoi later denied the claims when questioned at a press conference.

"There is no smuggling of timber or logging from Laos by the Vietnamese army," said Nguyen Phuong Nga.

"All illegal logging and smuggling of timber will be strictly dealt with according to Vietnamese law."

Newman said it was ironic that Vietnam "recognises the need to protect its own forests while it is taking indiscriminately from next door".

The forests of Laos, a key source of food for its population, covered 70 percent of the land-locked country in the 1940s, dropping to 41 percent in 2002. By 2020, the figure could be as low as 30 percent, the EIA said.

"The governments of Vietnam and Laos urgently need to work together to stem the flow of logs and curb the over-exploitation of Laos precious forests before its too late," said Faith Doherty, head of EIA's forest campaign.

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