State-run Banco do Brasil, Latin America's biggest bank, is being sued by public prosecutors for allegedly funding "slave labour" and deforestation of the Amazon after it lent 8m reais ($4.9m) to farmers in northern Brazil.

Prosecutors in the Amazonian state of Pará have also launched a similar lawsuit against Banco da Amazônia, a smaller government-owned bank, for 18m reais in loans granted over the past few years.

Although slavery was officially abolished in Brazil more than a century ago, thousands of the country's poorest people are still trapped in work camps deep in the jungle where they earn next to nothing.

Deforestation also remains a sensitive subject for Brazil, which is desperate to join the ranks of the industrialised nations by exploiting its natural resources but is also guardian of the world's most precious rainforest.

Pará state said it had taken legal action after an investigation into 10 of its municipalities that have the highest rates of deforestation.

"We discovered 55 loans to farms showing various environmental irregularities and even cases of slavery," the prosecutor's office said in a statement on its website on Thursday.

Brazil's credit boom has supplied farmers with a source of easy money over the past few years, something that has made state authorities uneasy as they have little control over how these funds are managed.

The loans had violated Brazil's constitution, environmental laws, the regulations of the central bank and the national monetary council, as well as international agreements, prosecutors said.

If the lawsuits are successful, the banks could be ordered to pay compensation to the community and there may even be a substantial change to the way rural financing is managed in the region, the prosecutors said.

They want the banks to carry out internal audits to examine the loans they have issued in the state since July 2008 and quantify the extent to which that money has been used to chop down Amazon rainforest.

Banco do Brasil and Banco da Amazônia could not be reached for comment. In both lawsuits, Brazil's National Institute for Colonisation and Agrarian Reform (INCRA) also stands accused of "total inefficiency in keeping control and in the registration of rural dwellings in the region". INCRA could also not be reached late on Thursday.

Although Brazil has managed to reduce deforestation in the past decade, cutting illegal logging in the Amazon by 34 per cent between 2004 and 2009, global demand for food crops has put increasing pressure on the land. Many local farmers also believe they have the right to exploit the forest - the only source of livelihood in one of Brazil's poorest and most remote regions