The findings were revealed in a government research report, the first investigation into the impact of pollution on China's gross domestic output (GDP), the official Xinhua news agency said.

To determine the impact, researchers calculated a "Green GDP" by subtracting the cost of natural resources used and the cost of environmental degradation from total GDP, Xinhua said.

The report was jointly released by the State Environmental Protection Administration and the National Bureau of Statistics.

"This marks only the beginning of our efforts in a Green GDP calculation," Pan Yue, deputy director of the environmental administration, was quoted as saying by Xinhua.

"Our formula is still not complete and we have to keep working hard to improve it."

A report by the top legislature said last month China has failed to control water and air pollution, with the problems worsening.

Air pollution control goals set by the government were not only being missed, but air quality had deteriorated, said the report by the National People's Congress.

Sulfur dioxide emissions -- usually from coal-burning power stations -- amounted to 25.5 million tons last year, a 27 percent increase from 2000, making China the world's biggest sulfur dioxide polluter, the study said.