A bill that would allow increased sugar cultivation in the Amazon region has passed a key senate committee, in what activists decried as a major environmental setback.

The measure, which still needs approval in the lower chamber of Brazil's Congress, authorizes sugar cultivation in deforested and savannah areas but not in untouched parts of the rainforest.

Marina Silva, an environmental activist, former cabinet minister and 2010 presidential candidate, called the bill's passage on Tuesday "a grave environmental setback" that "authorizes further deforestation to plant sugar cane."

Brazil is the world's leading producer of coffee, sugar cane, beef and orange juice, and is tied with the United States as the world's leading soy bean producer.

Senators supporting the bill say the country needs to increase sugar cane production to meet to future demand for both sugar and sugar-cane based ethanol. This would also boost the impoverished Amazon region's economy, they argue.

Environmentalists have long clashed with the agricultural lobby in the ongoing war over expanding Brazil's agricultural frontier.

Since February the senate environmental committee has been led by Blairo Maggi, a former state governor who owns the Andre Maggi group, the world's largest soybean producer.