Two tobacco giants and the "big four" UK supermarket chains are being investigated over the alleged price-fixing of cigarettes in breach of competition laws.

The Office of Fair Trading (OFT) issued a statutory notice yesterday to Imperial Tobacco and the Gallaher Group as well as 11 retailers, including Asda, Sainsbury's, Tesco, Morrisons and Shell detailing the anti-competitive activities they are investigating.

The companies have two months to respond to the "statement of objections" drawn up by the regulator, which is charged with uncovering and eliminating cartels.

It is the latest in a series of high-profile investigations by the OFT, which last week announced a major inquiry into price-fixing in the construction industry.

The OFT alleges that firms co-ordinated to link the price of some brands to rival products and separately that some of those named arranged to swap information on pricing.

It said the tobacco manufacturers and retailers struck deals that "restricted the ability of each of these retailers to determine its selling prices independently" between 2000 and 2003.

It added that Gallaher, Imperial Tobacco, Asda, Sainsbury's, Shell, Somerfield and Tesco were involved in the "indirect exchange" of proposed future retail prices between competitors between 2001 and 2003.

First Quench, Morrisons and the Co-operative group are also among those named in the inquiry.

John Fingleton, chief executive of the OFT, said: "For markets to work well for consumers, it is a fundamental principle that pricing decisions be made independently.

"If we find evidence of anti-competitive activity we are prepared to use the appropriate powers to punish the companies involved and to deter other businesses from taking part in such behaviour.

"If proven, the alleged practices would amount to a serious breach of the law."

The investigation comes days after the OFT apologised to Morrisons and agreed £100,000 damages after making incorrect accusations against the retailer in a dairy price-fixing investigation.

Imperial Tobacco's brands include John Player Special, Richmond, and Lambert & Butler, as well as leading brands abroad. Gallaher's brands include Benson & Hedges, Silk Cut, and Mayfair.

Imperial Tobacco said it would respond to the allegations in due course, adding: "Imperial Tobacco takes compliance with competition law very seriously and rejects any suggestion that it has acted in any way contrary to the interests of consumers."

A spokesman for the Gallaher firm said the group was "currently reviewing" the OFT statement.

Tesco said: "We do not believe that Tesco has acted in a way that has harmed consumers and we will make this clear to the OFT when we see the details of their allegations."

Companies involved in anti-competitive pricing practices can face fines of up to 10% of the relevant annual turnover, tobacco sales in this case, although penalties are generally less if businesses co-operate with an investigation.

Those retailers which are subjects of the investigation are: Asda; the Co-operative Group; First Quench, which trades under several brands including Threshers; Morrisons; Safeway (now part of Morrisons); Sainsbury's; Shell UK; Somerfield; Tesco; convenience chain T&S Stores, since bought by Tesco; and Martins parent TM Retail, which was recently rebranded Martin McColl.

The OFT declined to say whether any of the firms have applied for leniency.