The Royal Mail has warned proposals to introduce price limits on postage stamps alongside new performance targets would lead to the company's decline.

Industry regulator Postcomm today released plans which its says will make Royal Mail more efficient in a fully competitive postal market.

Among the measures, which are subject to a three month consultation period, are restrictions on price rises for stamps - from 30p to 34p for first class and 21p to 31p for second class stamps. The caps would remain until 2010.

Royal Mail would also be subject to new performance targets and up to £280 million in penalties if it fails to meet them.

But the state-owned organisation, which has traditionally enjoyed a monopoly on mail deliveries, slammed the plans as 'a blueprint for Royal Mail's inexorable decline'.

If Postcomm gets its way, it said, the business would be unable to compete when the postal sector is fully opened up to competition next year.

Royal Mail chairman Allan Leighton said rival firms would be able to cherry pick mail that is easy and profitable to deliver - such as business post - while Royal Mail would be compelled to carry rural letters at a loss.

"These proposals will literally starve Royal Mail of vital investment and so wreck quality of service we have fought so hard to improve. We cannot accept them. It's as simple as that," he said.

"Royal Mail's postmen and women have achieved a fantastic turnaround and are now delivering the best quality of service in a decade. These proposals are a kick in the teeth for our people."

The company plans to take their case to the Competition Commission if the proposals are not changed.

Postcomm, however, said the changes were necessary.

"Royal Mail still has 99% of the letters market, but even limited competition so far in the marketplace has made the company more efficient and more customer-focused," said Postcomm chairman Nigel Stapleton.

"Our proposals seek to strike an appropriate balance between Royal Mail's regulatory freedom in a newly liberalised market and the interests of mail customers and rival postal operators."

Over recent years, Royal Mail has made significant financial losses. Before chief executive Adam Crozier introduced new measures in 2002, the company was losing £1.5 million a day, had shed 33,000 jobs and shut down 2,500 Post Offices.

Royal Mail is now pulling in £2 million a day with annual profits rising to £537 million.