LONDON (Reuters) - British and Finnish scientists have found a way of generating renewable propane using a bacterium widely found in the human intestine and say the finding is a step to commercial production of a fuel that could one day be an alternative to fossil fuel reserves.

"Although we have only produced tiny amounts so far, the fuel we have produced is ready to be used in an engine straight away," said Patrik Jones of the department of life sciences at Imperial College London, who worked on the research.

He said while work is at a very early stage, possibly 5-10 years from the point where commercial production would be possible, his team's findings were proof of concept for a way of producing renewable fuel now only accessible from fossil reserves.

Propane is an inherently clean burning fuel due to its lower carbon content. Its development would also be convenient because it has an existing global market.

In its current form it makes up the bulk of liquid petroleum gas (LPG), which is used to fuel everything from cars to central heating systems to camping stoves. It is already produced as a by-product during natural gas processing and petrol refining, but both of these are fossil fuels that will one day run out.

"Fossil fuels are a finite resource and...we are going to have to come up with new ways to meet increasing energy demands," Jones said in a statement about the research.

He said a major challenge for scientists is to develop a renewable process that is low-cost and economically sustainable.

At the moment algae can be used to make biodiesel, he said, but that process is not commercially viable because the harvesting and processing requires significant energy and money.

"We chose propane because it can be separated from the natural process with minimal energy and it will be compatible with the existing infrastructure for easy use," he said.

In a study published in the journal Nature Communications on Tuesday, Jones' team - from Imperial College London and Finland's University of Turku - used Escherichia coli, or E.coli, to interrupt a biological process that turns fatty acids into cell membranes.

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The researchers used enzymes to channel the fatty acids along a different biological pathway, so that the bacteria made engine-ready renewable propane instead of cell membranes.

Jones said the level of propane his team produced is currently a thousand times less than what would be needed to turn it into a commercial product, so they are now working on refining their process.

"At the moment, we don't have a full grasp of exactly how the fuel molecules are made, so we are now trying to find out exactly how this process unfolds. I hope that over the next five to 10 years we will be able to achieve commercially viable processes that will sustainably fuel our energy demands."

(Reporting by Kate Kelland, editing by Ralph Boulton)