Laughing gas is being sold illegally in Britain's pubs and nightclubs despite warnings that it can kill, a Sky News undercover team has revealed.

Dozens of revellers were secretly filmed queuing up to buy nitrous oxide-filled balloons in a club's dedicated 'gas room'.

The youngsters then inhaled the gas before sharing it with their friends.

The balloons of nitrous oxide, or 'hippie crack', were on sale at Brighton's Ocean Rooms for ??2 a time - but it is becoming widely available throughout the country.

Clubbers experience a rapid but short-lived high. It is popular because it is perceived to be a safe party drug, and possessing and inhaling it is legal.

But the medicines watchdog, the MHRA (The Medicines and Healthcare Products Regulatory Agency), has warned that regular use of the gas can cause lasting health damage. And it vowed to prosecute anyone selling the drug for inhalation.

The gas is an anaesthetic commonly used by dental patients and women in labour.

The MHRA's head of criminal investigations, Danny Lee Frost, warned: "You don't go to the dentist every Friday night. You don't give birth every Saturday night. It's the long term effects of people taking this that we are concerned about.

"It suppresses the bone marrow. It causes hypoxia which drives oxygen out of the body. And there is some suggestion that it can cause brain damage," he said.

Sky News also found laughing gas for sale in a Bournemouth smoking paraphenalia shop called Paradox, which also has an online store.

It sells equipment for whipping cream, including cannisters of nitrous oxide propellant, designed for the catering trade. That's legal.

But our undercover reporter was told how he could use a balloon to capture the gas and breathe it in.

To supply the gas for inhalation purposes is an offence under the Medicines Act 1968. It can only be sold legally by a registered pharmacist.

Last year Daniel Watts, a 23-year-old company director, suffocated to death while taking laughing gas.

His body was discovered next to a large cylinder of nitrous oxide. He had put a bag over his head to concentrate the fumes.

Paul Madden, a friend and a club promoter, said: "I was devastated. I was distraught. It wouldn't sink in. It was very painful. He had the whole world at his feet."

But many young users are oblivious to the risks. Student Simon Oxenham has inhaled the drug several times.

"I didn't even think of it as taking a drug. It was just like having a shot at a bar," he told Sky News.

Matt Hirschler, also a student, said: "If you've got a spare couple of quid after buying drinks you get a balloon and pass it round."

Following our investigation, Paradox removed nitrous oxide from sale. The shop's owner said he had not realised it was illegal to inhale.

Ben Gill, manager of The Ocean Rooms in Brighton, said neither he nor the independent party organisers had been aware that they couldn't sell the gas to clubbers.

"No-one is aware of any laws being broken. It is really widespread. A lot of nightclubs are doing it and it is at nearly every festival. It's not something that is being brought to licensees' attention that this should not be going on."

Sky News has passed its evidence to the MHRA. Anyone prosecuted under the Medicine's Act faces up to two years in jail and an unlimited fine.