As hundreds of people cheered, Vermont Gov. Peter Shumlin signed a law Thursday that puts the small liberal state on the path to be the first to require labelling of genetically modified foods and promptly announced an online fundraiser to battle expected legal challenges from the food industry.

The Vermont law takes effect in mid-2016, but opponents said shortly after the bill signing that they would file a lawsuit. The Grocery Manufacturers' Association said government has no compelling interest in warning consumers about GMO foods. Another obstacle to the state law looms in Congress as Republicans work on a bill that would forbid states from passing and enforcing laws requiring GMO labeling.

Vermont Gov. Peter Shumlin speaks before signing the GMO labelling bill during a ceremony at the Statehouse in Montpelier on Thursday. (The Burlington Free Pres/Associated Press)

Critics of GMO foods consider them environmentally suspect and a possible health threat. But many in the food industry say the food is safe, the technology boosts food production, and its use is less environmentally harmful than traditional farming methods.

In signing the legislation, Shumlin asked for support Internet-wide, announcing the launch of a new website to help the state raise funds toward a court battle with agribusiness or biotech industries.

"We are asking people all across America, and all across the great state of Vermont, to go to (the website) and make a donation, so that we can win the Vermont Food Fight Fund fight not only for Vermont, but for America," Shumlin said.

The law calls for the labeling of processed GMO foods and for retailers to post signs on displays of unpackaged genetically engineered foods. Restaurants are exempt from the requirements. It also sets a civil penalty of $1,000 per day per product for "false certification." The entire product, not each individual item or package, would be subject to the penalty.

GM crops enable more sustainable farming, says biotech group

The Biotechnology Industry Organization (BIO) was quick to criticize the new law. In a statement, the group said scientists and regulators worldwide recognize that foods made from genetically modified crops are safe.

These same GM crops have enabled farmers to produce more on less land with fewer pesticide applications, less water and reduced on-farm fuel us. - Cathleen Enright, vice-president, Biotechnology Industry Organization

"And these same GM crops have enabled farmers to produce more on less land with fewer pesticide applications, less water and reduced on-farm fuel use," BIO vice-president Cathleen Enright said.

In Congress, a House bill proposes voluntary labels on GMO foods. The bill would require the U.S. Food and Drug Administration to create the guidelines for the labels.

About 300 people gathered at the Statehouse to celebrate the new law with live music and Vermont-made Ben & Jerry's ice cream.

"I'm so proud of the state I live in," said 11-year-old Brigid Ambrust of West Hartford, who started a letter-writing campaign to persuade legislators to pass the law. "I feel like this is a wonderful step toward a healthier world, and I'm so glad Vermont is the first to take it."

Maine and Connecticut have previously passed laws requiring labels on GMO foods, but their laws don't take effect unless neighboring states follow suit.