Brazil's antitrust authorities have begun an inquiry into allegations by a Brazilian soft drink producer that Coca-Cola used illegal measures against it in its battle in the country's soft drinks market.

Ragi Refrigerantes, a relatively small drinks company produces the Dolly Guarana-flavoured drink, claims to have videotaped comments from a former Coke executive, that prove the company engaged in corporate espionage and even outright sabotage. However, its main claim is that Coke helped distribute brand-damaging e-mails saying Dolly causes cancer.

The market for Guarana soda is huge in Brazil, accounting about a quarter of the 11.8 billion litres of soft drinks sold in the country. Dolly controls a small share in Sao Paulo and Rio de Janeiro.

Coca-Cola has said the charge it helped circulate the email are "false and make no sense." It said that the emails in fact hurt its own Guarana brand Kuat.

"The case deserves to go to the next level precisely so Coca-Cola can defend itself, given that Dolly is publicizing all the documents," said Daniel Goldberg, one of Brazil's top antitrust authorities, according to a spokeswoman for his agency.