* Subsidiary of France's Veolia blamed for tainted water
* Water had to be turned off for parts of Chinese city
* Veolia denies state media accusations it was at fault
BEIJING, April 18 (Reuters) - A French utility blamed by China for failing to maintain water quality standards said on Friday it is not responsible for polluting tap water with a cancer-causing chemical.
Benzene was found in tap water supplied by a subsidiary of Veolia Environnement, in Lanzhou last week, forcing the city of 3.6 million people to turn off supplies in one district. Other residents were warned not to drink tap water for a day.
Veolia Water China, said in a press release that its unit Lanzhou Veolia Water Co. did not cause the pollution. Rather it came from "an external source in a city with intense industrial activity," it said.
"Lanzhou VW Co. does not manufacture nor store benzene. The source of benzene can thus not be linked to Lanzhou Veolia Water Co.'s activity," the statement added.
Foreign companies are under increasing scrutiny from Chinese media, which has accused several firms of things ranging from pricing to bad customer service and shoddy products.
Chinese authorities said benzene had been found in the tap water supplied by Veolia at 20 times above national safety levels, according to state-owned China National Radio.
A report on the radio station's website on Wednesday quoted a Lanzhou government spokesman saying that "there were supervision problems within Veolia Water Company related to water quality and safety".
Lanzhou, a heavily industrialized city in the northwestern province of Gansu, ranks among China's most polluted.
Veolia said after hearing of the benzene levels, it immediately began treating the water to neutralize the pollution.
The Lanzhou government could not be reached for comment.
Lanzhou Veolia Water Co. is majority-owned by the Lanzhou city government, with Veolia's China subsidiary holding a 45 percent stake.
The government has already blamed a crude oil leak from a pipeline owned by a unit of China National Petroleum Corp. for the presence of benzene. PetroChina, the listed unit of CNPC, has denied media reports that it was to blame for the leak. (Reporting By Megha Rajagopalan; Editing by Robin Pomeroy)
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