A jury had originally awarded five billion dollars to be paid in connection with the worst oil spill in US history. It was reduced to four billion and then raised to 4.5 billion following various appellate rulings.

The appeals court, in a 2-1 decision, said the reduced amount is more in line with a standard set by the US Supreme Court for punitive damages to be limited to a "single digit" multiple of compensatory damages.

"We do so because, in assessing the reprehensibility of Exxon's misconduct ... there are several mitigating facts," Judges Mary Schroeder and Andrew Kleinfeld wrote.

"These include prompt action taken by Exxon both to clean up the oil and to compensate the plaintiffs for economic losses. These mollify, at least to some material degree, the reprehensibility in economic terms of Exxon's original misconduct."

Judge James Browning dissented, saying the 4.5 billion-dollar award should be maintained.

"Because I believe the punitive damages award in this case is not 'grossly excessive,' I would affirm," he wrote. "In reviewing the size of a punitive damages award, our sole duty is to ensure its imposition does not violate due process. Where an award lies within the bounds of due process, as this one does, we may not substitute a figure we consider more reasonable for one fairly awarded by a jury and properly reviewed by a district court."

In 1994, an Alaska court had ordered the Texas-based firm to pay five billion dollars in damages to some 34,000 fishermen and others who worked in Alaska's Prince William Sound, after the Exxon tanker crashed into a reef, spilling 11 million gallons (41 million liters) of crude into the sound.

ExxonMobil had argued it should not be forced to pay hefty punitive damages because it had already spent billions of dollars to compensate for losses and fund cleanup efforts.

But the activist US Public Interest Research Group called the latest ruling "an early Christmas present" for the company.

"It's outrageous that ExxonMobil, the most profitable oil company in the world, is getting a break in penalties for the largest oil spill in history," said PIRG spokesman Zack Brown.

"Prince William Sound is still feeling the negative impacts of this tragedy nearly 18 years later, while ExxonMobil is bringing record profits," he said.

ExxonMobil, which posted a record profit of 36 billion dollars in 2005 and has earned 29 billion in the first three quarters of 2006, has maintained that the environment in Prince William Sound "is healthy, robust and thriving," based on scientific reviews.

The company said it was reviewing the latest ruling.

"The Valdez oil spill was a tragic accident that ExxonMobil deeply regrets," spokesman Dave Gardner said.

"The company took immediate responsibility for the spill, cleaned it up, and voluntarily compensated those who claimed direct damages. This case is not about compensating people for damages. The plaintiffs have been compensated for damages and most were compensated within one year of the spill. This ruling is about whether punitive damages are warranted in this case."

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