(Adds denial from water company of cover-up in paragraphs 7-8)
BEIJING, April 15 (Reuters) - A Chinese court has rejected a lawsuit filed by five residents from a major northwestern city after authorities said a cancer-inducing chemical had been found in tapwater at 20 times above national safety levels, state media reported on Tuesday.
Levels of benzene, a cancer-inducing chemical, in Lanzhou's tap water rose 20 times above national safety levels on Friday, forcing the city to turn off supplies in one district and warn other residents not to drink tap water for the next 24 hours.
Monday's ruling is a setback for environmentalists, who have argued that courts need to accept pollution lawsuits for proper environmental reform to occur.
The lawsuit, filed on Monday afternoon, sought civil damages, a public apology and data from water quality testing in the past year from Lanzhou Veolia Water Co., a local unit of French firm Veolia Environment, according to the Modern Jinbao newspaper, citing Wu Tianying, one of the Lanzhou residents who filed the suit.
The newspaper said a court in Lanzhou dismissed the lawsuit, saying that the litigants did not qualify to sue, under Article 55 of the Civil Procedure Law. The article states that "only agencies and organizations that are stipulated by the law" are allowed to file pollution-related lawsuits.
State radio said on Monday that Veolia had discovered the benzene spike on Thursday afternoon, but only reported it to the city government the next morning, prompting a probe by the Chinese government.
Lanzhou Veolia Water Company's deputy general manager Yan Xiaotao said there was no late reporting or cover-up, Xinhua reported.
Yan said the company found abnormal levels of benzene during an analysis on Thursday and reported it to the Lanzhou municipal government, the state news agency said.
The water supply company, Lanzhou Veolia Water Co, is majority-owned by the city government, with Veolia China, a unit of Veolia Environment, 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.
Lanzhou city authorities said on Friday they found 200 micrograms of benzene per litre of water. The national safety standard is 10 micrograms.
Lanzhou, a heavily industrialised city of 3.6 million people in the northwestern province of Gansu, ranks among China's most polluted centres.
Wang Canfa, an environmental law professor who runs the Center for Pollution Victims in China, told Reuters before Monday's ruling that courts rarely accept lawsuits filed by people exposed to pollution.
"There are consequences to this, that is, if the courts continue rejecting lawsuits, it will result in many people seeking other ways (to make their case heard), such as petitioning or staging sit-ins outside government offices," he said. (Reporting by Sui-Lee Wee, Additional reporting by Li Hui; Editing by Michael Perry)