The Brazilian government has fined Chevron Corp $27.6 million and temporarily suspended all its drilling activities in the country, after the US oil major admitted it caused an oil spill off the coast of Rio de Janeiro.

Brazil's oil and gas regulator National Oil Agency (ANP) has also threatened to impose two additional fines of $28 million each on the San Ramon, California-based company for releasing "false information" and for not having adequate equipment to contain the spill that released almost 3,000 barrels of oil into the sea earlier this month.

Chevron is the third-largest oil producer in Brazil after state-owned Petrobras and Royal Dutch Shell.

In its most severe response to the spill so far, ANP has suspended Chevron's drilling in the Frade field in the oil-rich Campos basin where its well leaked and the order will remain in effect until the regulator identifies the causes and those responsible for the oil spill, and until safe conditions are re-established.

ANP has also suspended Chevron's drilling contractor Transocean, one of the company that was hauled by the US government for causing the Gulf of Mexico oil spill last year.

The $27.6-million fine, which was imposed by Brazil's Institute of the Environment and Renewable Natural Resources (IBAM) is the maximum allowed under current Brazilian law that dates back to 1998, according to institute chairman Curt Trennepohl.

The spill was first detected on 7 November after a 400-meter-long (1,312-foot-long) pipeline got fractured and according to Chevron, about 2,400 barrels of oil leaked into the ocean before it was able to rectify the problem.

ANP, however disputes these claims and alleges that oil continues to seep from the fracture and estimates that more than 5,000 barrels spilled into the ocean.

It estimates are based on an 8km and up to 300 meters wide oil slick. The US environmental group Skytruth estimates the spillage to be around 15,000 barrels of oil.

Chevron claims that the leak was caused when workers encountered unexpected pressure drilling a well in the Campos basin, and tensions escalated after the Brazilian government accused the company of misleading authorities over the incident.

Chevron is the operator of the Frade field project holding a 51.74 per cent stake, Petrobras holds 30 per cent and Frade Japao Petroleo Ltda, a joint venture including Inpex Corp and Sojitz Corp, holds 18.26 per cent.

Chevron's CEO in Brazil, George Buck, told Brazilian authorities that the company "acted as rapidly and safely as possible" and "used all resources" to contain and stop the flow of oil from the well.

"We controlled the source in four days. We worked with transparency and cooperation with the authorities of Brazil," he added.

Brazilian authorities say that despite the massive Gulf of Mexico disaster, oil companies have not equipped themselves to contain an oil spill. ANP said that Chevron was ill-equipped and ill-prepared to contain the spill.

But Carlos Minc, the environment minister for Rio de Janeiro state, had the last word and told foreign reporters in Rio that Brazil's laws ''allow foreign companies to explore in our waters, we welcome anyone as long as they respect our laws. We are not a banana republic. If a company violates Brazilian law and the concession terms … they should go to jail and lose all their exploration rights. We want to be treated with the dignity we deserve as the world's seventh-largest economy.''