Diamonds produced in a laboratory - cheaper and in a myriad of colours - should not be seen as a threat by industry giant De Beers since they will largely fill a separate niche, a group promoting the gems said.

De Beers, the world's biggest diamond producer with around half the market, has called man-made diamonds one of the greatest risks the $50 billion sector will face in coming years.

They've overreacted to a huge extent ... as with cultured pearls I believe this is going to enhance the diamond industry, Roger Lappeman, chairman of the newly launched Cultured Diamond Foundation, told Reuters in an interview on Tuesday.

Lappeman - who runs a diamond polishing firm and used to be one of De Beers' biggest clients in South Africa - said each diamond produced in laboratories will be clearly marked as such.

In addition, the bulk of man-made diamonds are coloured varieties, which are very rare in nature. Natural coloured stones are also only affordable by the wealthy.

A one-carat deep yellow natural diamond would cost around $30,000 and a pink variety as much as $500,000 while one produced in a laboratory would cost only $5,000.

The Johannesburg-based foundation hopes to help carve out a new market in more affordable coloured diamonds, taking market share from other gems like deep-blue Tanzanite.

Instead of allowing other precious stones, coloured stones, to take away from the diamond market, we are going to allow diamond lovers to grow that market, said foundation executive director Mike Goch, who also runs a gem distribution firm.

CONTROVERSIAL CULTURED TAG

So far only U.S. firm Gemesis is producing man-made diamonds on a commercial basis while another U.S. company, Apollo, is perfecting its product and is due to soon follow suit.

Gemesis is producing around 30,000 carats a year, a drop in the ocean compared with the 100 million carats of gem-quality diamonds mined each year.

The process of making diamonds in a laboratory is relatively slow - taking around four days for each gem - so meeting demand may be a problem, said Lappeman and Goch, who are rolling out a line of laboratory-made diamonds to jewellery shops this month in South Africa.

It will likely take between 10 and 15 years for man-made diamonds to take a small percentage of the diamond market, Lappeman added.

They rejected criticism by De Beers, 45 percent owned by mining group Anglo American Plc , and others in the established diamond industry about their use of the term cultured diamonds.

De Beers prefers the term synthetic diamond, saying cultured misleads the consumer.

Certainly we believe they are trying to use terminology that demeans the product. People when they hear that term synthetic immediately think of something that is not real, which is not the case, Goch said.

Laboratory-made diamonds - virtually indistinguishable from natural gems - are created in the same way as those that are mined, they said.

The same material, carbon, is subjected to extreme temperature and pressure similar to what occurred 100 miles below the earth's surface millions of years ago.

Gemesis and other diamond makers use a diamond seed, on which carbon atoms are deposited under temperatures as high as 1,500 degrees centigrade and pressure of up to 28,000 atmospheres.

The foundation says it wants consumers to know they are purchasing a laboratory-made product and therefore inscribes its logo and an identification number on the girdle of each diamond it certifies.

We consider ourselves to be as part of the diamond industry. We do not want these stones to be misrepresented, Goch said.

South Africa Diamonds Manufacturing