BP has set up a "snitch line" to reward people who inform the oil giant about fraudulent claims related to 2010's massive Deepwater Horizon oil spill.

The hotline promises that "tips that lead directly to an indictment, a recovery of money paid, or the denial of a claim because of fraud or corruption may entitle the reporter to a reward".

The move comes after BP appealed to a New Orleans court to reassess the terms of its compensation deal with local businesses, claiming it is being forced to pay hundreds of millions of dollars in inflated or fictitious settlements.

Following the fatal explosion of the Deepwater Horizon oil rig, BP moved swiftly to set up a compensation scheme that it originally estimated would cost the company $7.8bn. Patrick Juneau, the compensation scheme's administrator, has offered payouts worth more than half that $7.8bn. Less than a quarter of claims have been settled, and new cases are arriving at a rate of 10,000 per month.

The company originally made payments from the $20bn Gulf Coast Claims Facility (GCCF) set up by former chief executive Tony Hayward after a meeting with President Barack Obama in June 2010. Compensation was moved to the court-supervised settlement programme (CSSP) in 2012.

The company claimed the launch of the hotline was "particularly timely" because the CSSP spends substantially less than the GCCF on combating fraud. "This seems inappropriate given that the GCCF's fraud detection program enabled it to identify more than 7,000 claims as 'multi-claimant scams or even efforts at criminal fraud'," it said.

Earlier this month the judge overseeing the civil case against BP appointed former FBI director Louis Freeh to investigate allegations of misconduct by a lawyer processing spill damage claims.

"The launch of the hotline comes as federal law enforcement officials are clamping down on cases of fraud and other abuses in the claims process. In recent months, US attorneys in Florida, Alabama and Louisiana have secured guilty pleas and convictions against multiple individuals for attempting to defraud the claims process and take money to which they are not entitled under the law," BP said.

The move comes as BP claims law firms in the Gulf of Mexico are reaping a "bonanza" from what it says is a "perverse and outrageous" misinterpretation of the settlement agreement.

The company said payments to law firms roughly doubled during May and June to $1.5m per claim, versus an average of $756,000 in the previous two months.

An appeals court is now considering BP's claims that Juneau has misinterpreted the claim agreement. Lawyers for the plaintiffs argued this month that BP had agreed to the scheme and was now suffering "buyer's remorse". Samuel Isacharoff, a lawyer for the private plaintiffs, told the appeals court: "BP said: 'That's the settlement we want.' This is what they agreed to."

Three years on from the disaster the company has so far paid out $14bn on response and cleanup to help restore the environment. BP has also paid more than 300,000 claims totaling over $11bn to help restore the local economy.