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Internet gambling companies face a wave of consolidation in the wake of the US clampdown on online gaming, which could see American casinos and gambling businesses swooping for bargains in the sector, the heads of two of the biggest online gambling sites said on Monday.

Mitch Garber, chief executive of PartyGaming, and Gigi Levy, who takes over as chief of 888 Holdings this year, made their predictions as the sector felt the impact of the bill passed in the Senate on Friday making it illegal for banks and credit card companies to process online gaming payments from the US.

Investors wiped $7bn (£3.7bn) off the market value of what at the start of trading was an industry worth $12bn, as heavyweight internet gambling companies said they would suspend indefinitely their US operations.

PartyGaming, the biggest company in the sector, lost 57.94% after announcing it would suspend all money gaming business with the US indefinitely when President Bush signs the bill into law.

Across the sector, internet gambling stocks went into freefall. Sportingbet lost 64% of its value, falling to 66p. 888 Holdings, which has also indefinitely suspended US operations and expects to take a charge, dropped 26%.

Mr Garber told the Financial Times that he expected the pace of consolidation to quicken, with MGM and Harrah’s, which built their gaming empires around the fully regulated Las Vegas casino industry, likely to step in. However, Harrah’s had other matters on its mind yesterday with news that it had received a $15bn takeover offer from private equity companies Apollo Management and Texas Pacific.

Now that listed internet gambling companies are expected to abandon the US en masse, the remains of their businesses will be free from the question of illegality that might have put off investors and prospective buyers in the past.

Mr Garber said: ‘I wouldn’t be surprised if they [MGM and Harrah's] didn’t have an interest in winning non US-facing companies as a means of tipping their toes in the internet world.’

Mr Garber said he expected PartyGaming to be involved in buying up companies likely to suffer heavily from the impact of the new US legislation. ‘We are very focused on mergers and acquisitions. I see our liquidity as being very attractive to smaller players who may not be able to survive on their own.’

A banking adviser in the sector said: ‘This is going to create a round of consolidation but what format and nature and how broad is a different matter.’

Mr Levy said consolidation would happen first between online operators in order to restore the high margins lost by the US debacle followed by takeovers by big onshore operators coming from both the US and the UK.

Rushing to finish their work by the weekend to go home and campaign for elections in which control of Congress is at stake, lawmakers were linking up unrelated measures in an effort to get them approved.

The House passed an Internet gambling ban earlier this summer, but the bill had difficulty moving in the Senate. However it was a priority of Senate Republican Leader Bill Frist of Tennessee, and attaching it to the popular port security bill appeared aimed at insuring its passage.

Votes were expected by midnight Friday in both the Senate and the House of Representatives.

Port security advanced as an issue in Congress this year after an outcry over the Bush administration’s decision to allow an Arab company, Dubai Ports World, to buy major U.S. port assets.

House and Senate negotiators agreed late on Thursday on the outlines of the port security legislation. It would authorize $3.4 billion over five years for actions such as installing radiation detectors at the largest U.S. ports.

There were attempts on Friday to add other unrelated amendments, but apart from the Internet gambling provisions, the others were rejected, a top House leadership aide said.

Those rejected included an attempt to shield telephone companies from liability for privacy violations if they supply the U.S. government with access to customer records. This idea came from Alaskan Sen. Ted Stevens, Republican sources said.

‘Our bill is slimming down and I’m very pleased with the port security portions,’ said Rep. Dan Lungren, a California Republican and one of the key negotiators on the legislation.

Another proposed add-on that was rejected would have tightened security at courthouses and stiffened penalties for attacks on judges.

Language that would have added billions more for rail and mass transit security had been stripped out of the port security bill earlier, lawmakers and their aides said. So was language to lift a cap on federal airport security screeners.

The heart of the port security bill deals with cargo container security. Only a fraction of the millions of containers that enter U.S. ports each year are inspected. That has prompted warnings that sea cargo remains a serious security risk, five years after the September 11 attacks.

The issue languished in Congress until earlier this year when lawmakers said they had security concerns Dubai Ports World’s acquisitions at six major U.S. ports. To quell the uproar, the company said it would sell the port assets.

The ports bill requires the government to finish installing radiation-screening equipment at 22 major U.S. ports, which handle 98 percent of all containers, by the end of 2007.

It also sets up a pilot program at three foreign ports to test the feasibility of scanning cargo headed for the United States while it is still overseas.

But another bill that was inspired by the Dubai furor — proposed tightening of the rules governing approval of foreign takeovers — has stalled in Congress. The two chambers passed competing versions and have not reached a compromise.