Beijing/New York, Jan. 1 (Reuters): The popular Internet telephone service Skype could be dealt a major setback in one of the world’s largest markets as the Chinese government cracks down on what it called illegal Internet telephone providers.

A Chinese government circular from the powerful ministry of information and industry technology called for a crackdown “on illegal VoIP (voice over Internet protocol) telephone services” and said it was collecting evidence for legal cases against them. It did not name any phone companies.

Skype was still available in China last evening through its joint venture partner TOM Online.

Skype had not yet been contacted by Chinese government officials, a Skype spokesman said yesterday in the US.

The timing of a ban in one of the world’s fastest growing markets could dampen investor enthusiasm for Skype as it prepares a 2011 initial public offering. The Luxembourg-based company, which has about 124 million users worldwide, is expected to be valued at about $1 billion in the IPO.