A top Interior Department official was told nearly three years ago about a legal blunder that allowed oil companies to avoid billions of dollars in payments for oil and gas pumped from publicly owned waters in the US.

According to the New York Times a report by the department’s chief independent investigator, suggests that Interior officials could have fixed the mistake far more easily if they had taken action when they first recognized it.

Investigators calculate that the government could have collected an additional $865 million in the last three years alone if officials had told companies drilling in the Gulf of Mexico that they owed all the royalties required on oil and coal extracted from federal waters.

And while the report confirms that the original leasing blunders were made under the Clinton administration, it provides new details about the reluctance of the Bush administration to discuss the issue publicly or find a fix for the problem for nearly six years.

Unless the leases are changed, administration officials expect the mistake to cost billions of dollars in royalties that drilling companies usually are required to pay the federal government for oil and gas pumped from the gulf.

The report is the result of a nine-month investigation by the Interior Department’s inspector general in response to questions raised by the Senate Energy Committee and the House Natural Resources Committee. It will be the focus of a hearing today by Senator Jeff Bingaman, Democrat of New Mexico and chairman of the Senate Energy Committee.