Unregulated betting websites that allow underage gamers to gamble away huge amounts of money look set to be shut down after video game giant Valve announced a crackdown on the controversial practice of skins gambling.

Key points: Valve says the gambling websites are breaching its terms of agreement

Valve says the gambling websites are breaching its terms of agreement It will send offending websites notices asking them to stop operating through Steam

It will send offending websites notices asking them to stop operating through Steam Skins gambling has been linked to match fixing, underage gambling

Gamers were using weapon colours — known as skins — obtained through the game Counter-Strike to gamble on third party websites.

Just like chips in a casino, players could take their skins and use them as currency in games such as roulette and coin flips.

Gamers could cash out their skins for money at any time through another third-party website or simply use them in-game.

The practice became hugely controversial as underage people developed gambling problems, lawsuits were filed in the US and there were also allegations of bet rigging.

To gamble the weapon textures, gamers used their individual Steam accounts to log into the rogue skins gambling websites.

Valve, which runs Steam, said it would no longer allow that to happen.

"We are going to start sending notices to these sites requesting they cease operations through Steam," Valve spokesman Erik Johnson said in a statement.

The ABC recently revealed that Australian teenagers were losing thousands of dollars gambling skins.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 6 minutes 58 seconds 6 m Australian teenagers risking thousands through popular video game ( Norman Hermant and Mark Doman )

In one case, a teenager stole his father's credit card and lost almost $2,000.

Mr Johnson said the websites gamers were using to gamble were in breach of Steam's terms of agreement.

"Users should probably consider this information as they manage their in-game item inventory and trade activity," he said.

How does it work? The skins act in a similar way to chips in a casino: users buy them from an online market and can then take them to websites

The skins act in a similar way to chips in a casino: users buy them from an online market and can then take them to websites There are hundreds of skins websites where gamers can bet on games of black jack, roulette, or even a coin flip

There are hundreds of skins websites where gamers can bet on games of black jack, roulette, or even a coin flip All the skins have a value based on their rarity. Prices range from less than $1 up to more than $2,000

All the skins have a value based on their rarity. Prices range from less than $1 up to more than $2,000 The skins don't change the performance of a gun in CS:GO, just how it looks

The skins don't change the performance of a gun in CS:GO, just how it looks It takes just seconds to set up a gambling account for Counter-Strike players

It takes just seconds to set up a gambling account for Counter-Strike players There is no age limit on the gambling website and no responsible gambling messages, as is required in Australia

In a lawsuit filed in the US last month, lawyers alleged Valve was supporting and profiting from illegal gambling by allowing these third party websites to use Steam log-in information.

"In sum, Valve owns the league, sells the casino chips, and receives a piece of the casino's income stream through foreign websites," the lawsuit stated.

But the statement from Valve rejected that allegation, saying it did not receive money from the gambling websites.

"There have been some false assumptions about our involvement with these sites," Mr Johnson said.

"We'd like to clarify that we have no business relationships with any of these sites. We have never received any revenue from them. And Steam does not have a system for turning in-game items into real world currency."

Following the news, gaming broadcast website Twitch announced it would also be shutting down streamers that promote skins gambling.

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"Broadcasters are not permitted to stream content that breaks the terms of service or user agreements of third-parties," the company said in statement.

"As such, content in which the broadcaster uses or promotes services that violate Valve's stated restrictions is prohibited on Twitch."

This is the full statement from Valve: