Cars and motorcycles which are sold with extended warranties in Britain will be treated as "insurance products" and subject to Financial Services Authority (FSA) rules from the New Year, the Daily Telegraph reported.

Jim O'Donnell, managing editor of the UK arm of German car giant BMW, this week described the new Insurance Mediation directive, due to be introduced on January 15, as a "farce", adding it was "the most damaging piece of legislation to hit our market", and will probably force up the cost of warranties by 25%.

The newspaper said the new rules are intended to regulate how insurance is sold, but the government has interpreted it as covering car or motorcycle insurance products, and warranties lasting up to 24 months.

According to the Daily Telegraph, BMW has already footed a £300,000 legal bill as it works out how to meet the legislation and is also paying £5,000 per dealer to train up its staff under the new rules.

O'Donnell was bitter that other countries like France, Germany and Ireland have decided the regulations do not apply to car dealers, the report added.

BMW's rival Ford told the Telegraph the regulations were costing £500,000 to implement, plus training. A Ford spokesman reportedly said: "This was not adding any value to the customer and considerably extra cost to us."

But the FSA defended the directive. A spokesman told the Daily Telegraph: "Why should a consumer not get the same protection at the dealership as they would get via an insurance broker?"

BMW head says red tape and bureacracy "drowning" motor industry