The government said its deal with American Electric Power, one of the nation's biggest coal-fired electricity producers, would reduce respiratory diseases and ground pollution across the eastern United States.

AEP is to cut its emissions of sulfur dioxide and nitrogen oxide at an estimated cost of more than 4.6 billion dollars, according to the Department of Justice and the Environmental Protection Agency (EPA).

Resolving more than eight years of litigation, the company will also spend 60 million dollars to clean up the effects of its past pollution, and hand over a 15-million-dollar civil penalty.

"The AEP settlement will have an unprecedented impact on air quality in the eastern United States," said Ronald Tenpas, an acting assistant attorney general at the Justice Department.

Joined by eight eastern US states and 13 environmental groups, the federal government accused AEP of making major changes to its aging power plants that drove up noxious pollutants without first getting regulatory approval.

The settlement covers 16 plants in Indiana, Kentucky, Ohio, Virginia and West Virginia generating a combined amount of more than 20,000 megawatts of power.

The company made no admission of guilt in reaching the settlement. Chief executive Michael Morris insisted that AEP's plants met legal requirements.

"But we have also said that we would be willing to consider ways to reasonably resolve these issues. This consent decree represents such a resolution," he said in a statement.

"It eliminates the potentially significant financial risk of pursuing the litigation to its conclusion while still achieving the environmental improvements that both we and the government want."

AEP, which supplies electricity to more than five million customers in 11 states, said also that the settlement would have no impact on its 2007 earnings guidance.

The company agreed to cut 813,000 tons of air pollutants annually, in what the government said was the single largest environmental enforcement settlement in US history.

"Today's settlement will save 32 billion dollars in health costs per year for Americans," said Granta Nakayama, assistant administrator for enforcement and compliance at the EPA.

"Less air pollution from power plants means fewer cases of asthma and other respiratory illnesses," he said.

The EPA said that once the company installs new pollution controls at its plants, residents of eastern states would suffer less illnesses such as asthma and heart disease caused by high levels of sulfur dioxide (SO2).

High concentrations of nitrogen oxide (NOX) are blamed for ground-level ozone, poor water quality and contributing to global warming. Both gases are primary contributors to acid rain, which damages forests and buildings.

The Sierra Club, a leading environmental group, said: "After years of trying to evade installing proper pollution controls, AEP is finally cleaning up their old power plants.

"The massive reductions in smog, fine soot and acid rain from these plants will profoundly benefit both public health and the environment," Sierra Club executive director Carl Pope said.

But the settlement was attacked by Valley Watch, an environmental group that last week dropped out of the list of plaintiffs involved against AEP.

"Deadlines for both SO2 and NOX drawn out for another 12 years offer nothing but more ill health for Valley Watch members and the public it seeks to serve," it said.

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