Research suggests battery-powered e-cigarette devices could be a safer alternative to cigarettes. But the illegal nicotine-laced ''e-juice'' - which is heated into vapour and then inhaled from the gadgets - is the subject of growing health warnings.

Eight shops were found to be selling a range of banned nicotine formulas in bottles that carried no list of ingredients, no warnings and, in some cases, no labels. Many originate from backyard laboratories.

While many are pre-mixed products from overseas, others are made locally using imported ''base'' nicotine under confusing legislation that governs personal use.

A spokesman for the federal Department of Health said on Friday it was ''exploring options for further regulation'' of electronic nicotine delivery systems.

A NSW Health spokesman confirmed that to date no person had been provided with a licence to supply nicotine-based e-liquids, and that people caught ''supplying'' or ''using'' the products faced prosecution.

While most e-cigarette users believe the industry needs regulation, some fear a blanket ban would not only prevent them from ''vaping'' but also drive them back to smoking regular cigarettes.

Leon Alegria, who supplies legal non-nicotine laced e-liquids from his ''Delicious Monsta'' website, said: ''Not everybody is doing the wrong thing.

''There is a lot of concern about the quality and safety of nicotine and e-liquids arriving from overseas. But until there is some form of consumer regulation, people will continue to gamble their health on toxic products, mixed by unknown sources beside a kitchen sink.''

Under the Standard for the Uniform Scheduling of Medicines and Poisons, nicotine is listed as a banned ''Schedule 7 poison''. The list also features chlorine and arsenic.

However, on the Australian Customs Service website, it states that a Schedule 7 poison ''does not normally justify an import prohibition''. Referring to Department of Health policy, it adds: ''The department does not consider an import control is warranted in the short term for individual use if bringing in less than three months supply.''

While many ''vapers'' are importing nicotine liquid for genuine personal use, The Sun-Herald is aware of others who regard the law as a loophole to flood the black market and profit commercially.

On Thursday, Whysmoke was selling a range of its own branded e-liquids from its ''one-stop shop'' in Fairfield. While its labels make no specific reference to nicotine as an ingredient, a shop assistant sold this reporter a ''tobacco'' flavoured solution for $10 and assured him it was ''the real deal''.

''Taste the nicotine yourself,'' they said. ''It's what we specialise in.''

Elsewhere, sellers were doing a roaring trade in pre-mixed versions from overseas. On Saturday, the Healthy e-cigarettes stand at Paddy's Markets promoted flavoured e-liquids that resembled an ice-cream menu, with chocolate, French vanilla, strawberry and tutti frutti among the legal solutions on display. While the operators initially denied selling nicotine fluids, they later produced a tub from below the counter and sold an 11-milligram ''USA Mix'' for $5, acknowledging: ''We could be fined for this.''

The Tobacco Station Group (TSG) shop in Liverpool supplied a 10-milligram coffee-flavoured e-juice for just $4, stating: ''We can get it for you cheap cheap. Around the corner, they charge $7.''

In Kings Cross, meanwhile, the TSG shopkeeper pointed to a range of legal e-liquids on display before producing a large Cuban cigar box brimming with illegal solutions. Selling this reporter a $12 vial that stated ''Apple'' on the side, the shopkeeper said: ''I do not know what is in it, but nicotine definitely yes, medium strength I think. It's very popular.''

The Department of Health spokesman said on Friday there was ''no loophole'' allowing a flood of nicotine into Australia. ''Personal importation … is permitted under the Therapeutic Goods Regulation 1989 under very specific circumstances, which includes that a person attempting to import nicotine must have a prescription from their doctor.''

But on Saturday he acknowledged that the department was now talking to Customs ''about clarifying the statements currently on their website''.