Cameron told parliament on Wednesday that fixed-odds betting terminals on which gamblers can spend up to 300 pounds ($495) in a minute were a problem, but he stopped short of proposing concrete action pending a review into their impact.

Critics call the terminals highly addictive, dubbing them the crack cocaine of gambling. There have also been claims that they facilitate money laundering.

The opposition Labour Party has said it will give councils additional authorities to limit the spread of the machines if it wins a general election due to be held next year.

The tougher tone from Cameron pushed down shares in William Hill, Britain's biggest bookmaker, and rival Ladbrokes. William Hill shares dropped 6.4 percent to 374 pence. Shares in Ladbrokes fell 3.8 percent to 172.5p.

The Gambling Commission estimates more than 33,000 of the machines are installed in betting shops, generating over 1.5 billion pounds ($2.5 billion) in annual revenues.

PROTECTING GAMBLERS

Bookmakers plan to introduce additional safeguards in March to warn gamblers of how much they have spent and how long they have been on a machine.

"We have told the industry they have to do more to mitigate harm, provide evidence of how that is working and made clear we will take action to protect people if it is needed," said a spokeswoman for the government's Department of Culture, Media and Sport.

However, the Association of British Bookmakers said there was no evidence to support claims that the machines led to more problem gambling.

"The industry continues to develop its approach to harm mitigation for the small number of gamblers who do experience problems," the ABB said in a statement.

The Responsible Gambling Trust charity is studying the impact of the machines and expects to publish an interim report this spring, ahead of its full study later this year.

Analysts at Barclays said further regulatory concerns would hit the gambling sector, because they had always been a key factor in investor sentiment towards bookmakers.

"We stress that there has been no change to regulation but we expect that this negative news-flow will weigh on the sector," analysts said in a morning note.

Bookmakers already face the likelihood of a higher tax bill from December 2014 as the government closes a tax loophole on online gambling.

Barclays downgraded William Hill to equal weight from overweight and downgraded Ladbrokes, which it believed would be hit the hardest by any potential machine regulation, to underweight from equal weight.

(Reporting by Belinda Goldsmith and Keith Weir; Editing by Larry King)