Iceland will stop using palm oil in its own brand food by the end of the year, the supermarket chain announced on Tuesday.

It said it was removing palm oil, which is linked to the destruction of swathes of rainforest, from 130 food products and replace it with more environmentally friendly alternatives such as sunflower oil. The move will reduce demand for palm oil by 500 tonnes, the company said.

Palm oil production results in widespread deforestation Indonesia and Malaysia, destroying habitats of many critically endangered species such as the orangutan and making a major contribution to climate change.

Demand for palm oil has increased rapidly for use in a huge range of foods and toiletries. It is now thought to be present in around half of all supermarket products, leading the industry to launch attempts to certify that it is sustainable.

Many companies that sell products containing palm oil have signed up to the Roundtable on Sustainable Palm Oil (RSPO), a self-regulating organisation which aims to guarantee minimum environmental standards, but campaign groups have criticised its efforts for not being robust enough.

Richard Walker, Iceland’s managing director, said the supermarket had decided to remove palm oil because there was none available on the mass market that could be verified as sustainable.

A survey of 5,000 people carried out by Iceland found that 35 per cent of consumers were unaware what palm oil is, despite its ubiquity in household products ranging from breakfast cereals to shower gel.

When informed about the oil’s negative effects on the environment 85 per cent said they did not believe it should be contained in food products.

Mr Walker said: “Until Iceland can guarantee palm oil is not causing rainforest destruction, we are simply saying 'no to palm oil'.

“Having recently been to Indonesia and seen the environmental devastation caused by expanding palm oil production first hand, I feel passionately about the importance of raising awareness of this issue - and I know many British consumers share my concern and want to have a real choice about what they buy.

“This journey has shown me that, currently, no major supermarket or food manufacturer can substantiate any claim that the palm oil they use is truly sustainable, as the damage being caused to the global environment and communities in South East Asia is just too extensive.”

Greenpeace UK executive director John Sauven, said time was running out for household brands to clean up their acts and for the forests and wildlife being destroyed by palm oil producers.

“As global temperatures rise from burning forests, and populations of endangered species continue to dwindle, companies using agricultural commodities like palm oil will come under increasing pressure to clean up their supply chains,” he said.