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Cairn Energy has discovered gas off the coast of Greenland, a sign that could lead to a possible oil discovery.

Edinburgh-based Cairn, the first company for a decade to drill for oil offshore in Greenland, said it had "early indications of a working hydrocarbon system" in Baffin Bay.

But environmental campaigners have raised concerns in the wake of BP's Gulf of Mexico oil spill disaster.

Greenpeace said the announcement was "grave news".

The group says it threatens the fragile Arctic environment, and has sent a protest ship to Baffin Bay.

Cairn's T8-1 well in Baffin Bay found small quantities of gas in thin sands.

Drilling is continuing at the site, and the company plans to drill at least two other wells this summer.

In the long term, it plans to target depths of more than 4,000 metres.

Despite the company's positive statements Cairn shares fell almost 4%, with analysts saying this could be because no oil had yet been found.

Cairn chief executive Sir Bill Gammell asserted, however, that the discovery confirmed its belief in the exploration potential in the area.

"We look forward to assessing the results of the remainder of the 2010 drilling programme," he said.

Five wells were drilled off Greenland in the 1970s following sharp rises in oil prices but all exploration stopped when the companies found them to be dry. A further well drilled in 2000 was also abandoned when no oil was found.

Drilling for oil in the region would boost the economy of Greenland, which is a self-governing territory of Denmark.

The Bureau of Minerals and Petroleum, the government department that handles licence applications for offshore drilling, has said that developing oil activities is "one of the most important areas, if we are to create enough revenues to replace the block of subsidy from Denmark".

Cairn's announcement came as the company reported a return to profit in the first half of the year.

It swung to an $88m (£57m) pre-tax profit, compared with a loss of $22m in the first six months of 2009.

Sir Bill also told reporters he was confident that the proposed sale of a 51% stake in its India unit to Vedanta Resources would go ahead. It wants to sell that unit in order to finance exploration in Greenland.

A separate report on Tuesday from the Health and Safety Executive in the UK said major oil and gas leaks offshore in Britain rose 39% last year.