China's civil aviation administration told East Star to cease its 20 domestic passenger routes in and out of Wuhan, in central China, after the company failed to pay US-based General Electric Aviation for the hire of its planes, Xinhua said.

GE Aviation had sought help from the Wuhan city government over the unpaid fees and had started legal proceedings, the report added.

East Star, which began operation in May 2006, had been the target of an intended buy-out by flag carrier Air China, but no agreement had been reached, Xinhua said.

Chinese airlines, like their counterparts around the world, have come under increasing pressure from volatile fuel prices and falling passenger numbers.

In December last year, Okay Airlines, China's first-ever private air company suspended its operations after building up massive debt.

Okay, based in the northern port city of Tianjin, had racked up 200 million yuan (29 million dollars) in debt since its launch in 2005, according to state media.

China's small number of private airlines are especially vulnerable during the current economic downturn because their passenger base is relatively small and they do not have the same access to funding as state-owned competitors.

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