JAKARTA, July 3 (Reuters) - Palm oil producer Wilmar International has been accused by an environmental group of illegally logging Indonesian forests, setting them on fire and violating the rights of local communities in the country.

Singapore-listed Wilmar <WLIL.SI>, expected to be the world's largest palm biodiesel manufacturer after approval of a $4.3 billion acquisition, denied the allegations by Friends of the Earth Netherlands.

Wilmar said in a statement on Tuesday it strictly adhered to a "zero burning policy" and did not engage in any logging activities.

"We will only develop plantations on land, which is approved by the government for the cultivation of oil palms," it said.

Wilmar owns extensive palm plantations and refineries in Indonesia and Malaysia, the world's leading palm oil producers, where environmentalists say swathes of forest land are being stripped down to feed growing demand for bio-fuels.

The Friends of the Earth report accused the company of violating an Indonesian law requiring approval of an Environmental Impact Assessment before palm oil development starts, and said it was clearing forest beyond its allocated borders.

"Forests are being cut and burnt down illegally, Indonesian laws are being broken and local people are suffering," Paul de Clerck, corporates campaigner at Friends of the Earth International, said in a statement.

The report highlighted the danger of the European Union's recent commitment to replace 10 percent of its transport fuel market with biofuels by 2020.

"If the European Union continues to promote palm oil imports in order to meet its recently-adopted 10 percent biofuels target, this will simply aggravate the severe environmental and social impacts in countries like Indonesia."

Indonesia has a total forest area of more than 225 million acres (91 million hectares), or about 10 percent of the world's remaining tropical forest, according to Rainforestweb.org, a portal on rainforests (www.rainforestweb.org).

But the tropical Southeast Asian country -- whose forests are a treasure trove of plant and animal species including the endangered orangutans -- has already lost an estimated 72 percent of its original frontier forest.

Indonesia, the world's second largest palm oil producer, already has around 5 million hectares of land planted with oil palm and the government aims to develop between 2-3 million hectares more of oil plantations nationwide by 2010.

(Additional reporting by Ovais Subhani in Singapore)

AlertNet news is provided by