Tea tree oil, the increasingly popular remedy for everything from spots to insect bites and vapour rubs, is under threat of being banned by the European Union. The EU has said that even small amounts of the undiluted oil could be unsafe and unstable after clinical trials found users risked rashes and allergies.

Cosmetic products, such as shampoo and bath oils, that use the oil in concentrations of less than 1 per cent are safe. But the toiletries and cosmetics firms that produce the neat form of the natural remedy have been given until June to convince a panel of scientists that the oil is safe to sell to the public.

The warnings follow revelations that boys have been warned against using oils or hair gels that contain tea tree oil after three cases of them growing breasts were reported.

Researchers in the US believe that the oils may have hormone-like properties that lead to gynaecomastia - the growth of breasts. When the boys stopped using the oils, the breasts disappeared. Writing in New England Journal of Medicine, the researchers say that the repeated use of such oils may disrupt hormonal function.

It has also been revealed that tea tree oil in cosmetics and creams could increase the chances of catching 'superbug' infections in hospital. Exposure to low doses of the oil made pathogens such as MRSA, E.coli and salmonella more resistant to antibiotics.

'Because essential oils are natural products, the public often assumes they must be safe,' says Frances Fewell, director of the Institute for Complementary Medicine. 'You should never apply any sort of essential oil directly to the skin without diluting it first in a suitable carrier oil. Tea tree oil has become very popular, and many people have started applying it directly to deal with acne and skin infections. In fact this is a very aggressive oil. The skin can dry out, blister or form a rash.'

In a strongly worded report, the EU's Scientific Committee on Consumer Products has said it has serious concerns about the neat oil which, it found, is 'a severe irritant' to the skin and 'degraded rapidly' if exposed to air, light and heat.

The SCCP said existing safety tests were inadequate and that even widely sold toiletries were of 'questionable stability and were being sold without adequate proof of safety'.

'The sparse data available suggest undiluted oil as a commercial product is not safe,' the committee's report said. 'Our major concern is that toxic and risky chemicals become even more potent - up to three times as strong - if stored at room temperature, and exposed to light and air.'

'Whether or not the SCCP will be reassured by whatever the toiletries and cosmetics firms give them in June, I'm not sure,' said Christopher Flower, head of the British Cosmetic, Toiletry and Perfumery Association. 'They may have a view on whether it is still appropriate for the public to use it neat at all. They may well decide that, regardless of the industry's presentations to them, the neat oil should not be used. Or they may simply say it should not be used frequently or over all of the body.'

Essential oils are concentrated oils extracted by passing steam through plants. The steam vaporises the volatile aromatic chemicals in the plant and these are then distilled.

Not all essential oils, however, have gone through this process. 'Essential oils are widely available under various forms of labelling and packaging, sometimes with insufficient regard for safety,' says Sylvia Baker of the Aromatherapy Trade Council.

'Many are of poor quality, and some are totally synthetic. There are companies that specialise in making nature-identical oils and then offering them as pure products. Others are bulked with cheaper oils and synthetics.'

The oil, which is derived from the Australian melaleuca tree and has been a traditional remedy among Australian Aboriginals for centuries, is famous for its antiseptic properties. Used by Australian troops for battlefield injuries in the First World War, it is now found in shower gels, toothpastes, mouthwash and face cleansers, to cure skin complaints, to treat cuts and burns, and as an insect and lice repellent.

After the birth of their son Alastair, rock star Rod Stewart and his girlfriend, Penny Lancaster, reportedly took home their baby's placenta, sprinkled it with tea tree oil and buried it in their garden.