A price war is raging between a powerful online bookseller and a leading publisher, with authors caught in the crossfire and losing vital royalties.

Amazon is in conflict with the Hachette Group, Britain’s largest publisher, over terms and discounts and is refusing to sell its titles.

The online bookseller has imposed extraordinary sanctions against the publisher, whose authors include the bestselling writers Stephen King and James Patterson. It is listing Hachette books but preventing the public from purchasing them by removing the “buy new” button from its websites. Titles such as the hardback of King’s Duma Key and Patterson’s The 6th Target have been affected with only “used” copies being offered for sale.

Amazon already buys its books from publishers at half the cover price and is seeking even larger discounts.

Hachette – whose many companies and imprints include Headline, Hodder & Stoughton, John Murray and Orion – feels that the trade prices it offers leading booksellers are already “very generous” and that it cannot afford to cut them further.

A spokeswoman declined to comment, but The Times has seen a letter from Tim Hely Hutchinson, group chief executive of Hachette, that he sent to each of his authors who are most likely to be affected, now or in the future, by Amazon’s actions. His letter condemns “a breach of trust between Amazon and its customers” and says that the “aggressively” low pricing on prominent titles is also damaging traditional booksellers.

It reads: “Amazon has been removing the ‘buy button’ from some of our books and removing some of our titles from promotional positions . . . to apply pressure on us to give Amazon even better commercial terms than it presently receives. There are important strategic reasons for us to resist completely Amazon’s demands.”

The letter explains that larger British book retailers already receive the most generous terms in the English-language world from publishers. “Despite these advantageous terms,” the letter says, “Amazon seems each year to go from one publisher to another making increasing demands in order to achieve richer terms at our expense and sometimes at yours.”

Recalling a pricing dispute between Amazon and Bloomsbury, reported by The Timesthis year, Mr Hely Hutchinson writes: “If this continued, it would not be long before Amazon got virtually all of the revenue that is presently shared between author, publisher, retailer, printer and other parties.”

Publishers feel particularly threatened because Amazon in the United States has been demanding that it should take over the printing, initially of print-on-demand titles, dictating its own royalty terms to publishers and authors. “These encroachments need to stop now,” the letter says.

Amazon accounts for 16 per cent of all book sales in Britain, and at its present rate of growth, which was 30 per cent last year, it is expected to become the largest bookseller in Britain in about three years.

Observers pointed out that publishers have been giving huge discounts to supermarkets and mail-order companies since the price-fixing Net Book Agreement was scrapped in 1997. It is hardly surprising that Amazon continues to press its case when discounts to supermarkets are said to have reached about 75 per cent.

Supermarkets, however, buy a limited range of titles in huge numbers. They are also committed to the books because they cannot return unsold copies, unlike high street and online booksellers.

Mark Le Fanu, general secretary of the Society of Authors, toldThe Times that discounts demanded by the big retailers have been rising relentlessly, squeezing authors’ royalties. “Authors are being unreasonably penalised by Amazon,” he said. “It’s right that publishers stand up to Amazon and don’t carry on conceding ever higher discounts.

“Authors lose royalties as the discounts get bigger. Amazon is playing this one hard. Authors are suffering as a result. If Amazon is only selling secondhand copies of books, the author doesn’t get any money from them.”

Hachette authors were reluctant to speak out for fear of being penalised still further. Insisting on anonymity, one of them said: “A lot of us feel this is just bullying.”

Peter James, whose latest crime thriller, Dead Man’s Footsteps, has just been published, said that the decision to abolish the Net Book Agreement was now taking its toll of the industry. “It is the biggest disaster to hit British publishing,” he said. “Hachette is now paying the consequence for that.”

An Amazon spokesman said: “We never comment on our relationships with our suppliers.”

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