The development, revealed at a London seminar, is aimed at revolutionising the jeans market, worth more than $10bn annually in the US and more than pounds 800m in the UK.
Monsanto's scientists are understood to have transferred a gene from a plant with a blue flower - they will not say which one - into a cotton plant, producing a "bud" that is bright blue instead of white.
"When I saw it, it blew my mind," said Carlos Joly, the company's director of sustainability for Europe. "It is the colour of the sky on a summer's day," he told delegates to the seminar on agriculture aimed at British farmers and the UK agricultural community, which was picketed by the environmental pressure group Friends of the Earth.
Monsanto claims the naturally coloured fibre could do away with the pollution caused by large amounts of toxic dye used in the manufacture of blue denim, often in the Far East. The new cotton, the company says, is scheduled to be commercially available in 2005.
It has been grown in growth chambers and greenhouses in Monsanto's research laboratories in St Louis, Missouri, and Davis, California, but has not yet undergone field trials.
"Does it represent a cost saving? Yes. Does it represent an ecological benefit? Yes. But whether young people will be able to stone wash these jeans, I don't know," Mr Joly said.
The company says that it is also working on a genetically-engineered natural khaki cotton which could supply, dye-free, the vast world market for military uniforms, not to mention the booming fashion for such items as chino-style casual trousers.Reuse content