Amazon has been forced to remove an array of products from its website in India to comply with new regulations. The rules prevent online retailers from selling products through vendors in which they hold an equity stake.

The regulations are expected to have a far-reaching impact on India’s e-commerce sector, which has drawn billions in foreign investment. Amazon and Flipkart lobbied against the laws which aim to protect small businesses.

The changes to foreign direct investment rules, which come into force 1 February, also stop online retailers from making deals to sell exclusively on their platforms. Small retailers in India have long pushed for tougher competition rules, arguing the major players have an unfair advantage.

But Amazon and Walmart, which owns a majority stake in locally-grown platform Flipkart, both lobbied against the new rules. Products have started to disappear from Amazon, as it scrambles to comply with the new rules. Clothing from Indian department store chain Shopper’s Stop was also no longer available, as Amazon owns 5% of the company.

Amazon’s own range of Echo speakers, its Presto-branded home cleaning goods and other Amazon Basics products such as chargers and batteries had also disappeared. Brian Olsavsky, Amazon’s chief financial officer, said on a call with reporters, the “situation in India is a bit fluid right now.” Nevertheless, he said the country “remains a good long-term opportunity” for Amazon.

Amazon has committed to spending $5.5bn (£4.2bn) on e-commerce in India, while its competitor the US retailing giant Walmart has invested $16bn into Flipkart. Flipkart expressed disappointment with new rules but said it would comply.

“We believe that policy should be created in a consultative, market-driven manner and we will continue to work with the government to promote fair, pro-growth policies,” chief of corporate affairs Rajneesh Kumar said in a statement.

Many small traders say the e-commerce giants use their buying power and control over inventory from affiliated vendors to create an unfair marketplace. The Confederation of All India Traders expressed “deep satisfaction” over the introduction of the rules, calling them a “strong step to clean the greatly vitiated e-commerce market” in India.

But the group wants the government to go further by forming a new regulatory authority and a “special investigation team” to look into the business models of major e-commerce players. The sector, which includes an estimated 25 million small store owners, largely supported Prime Minister Narendra Modi in the 2014 general election.

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