Casino gambling in China is only legal in Macau. Firms there earned $38 billion from punters last year, a business that could be threatened if legal gambling was extended to other parts of the country.

Jesters, part of the newly opened Mangrove Tree Resort World in Sanya Bay, offered hotel guests the chance to win points that could be used to pay for accommodation, luxury goods, jewellery and artwork for sale at the resort.

"We have shut the entertainment bar," said Chen Guangfa, the deputy director of the Sanya Culture and Sports Bureau. "We are investigating it and so far, it looks like they have violated their operating regulations."

"When we approved it, the regulations and the certificate said its operations would be entertainment in nature, but inside the bar there are some games and they've gone beyond the scope of the regulations, so we closed it down."

She declined to comment on whether the activities constituted gambling, pending completion of the probe. Reuters has not seen the regulations or certificate referred to by Chen.

The colourful owner, Zhang Baoquan, had told Reuters the government was monitoring the concept of cashless gambling.

"Our casino bar is the first in the country. The government is monitoring, it's a test," Zhang told Reuters in a recent interview.

Following his comments, authorities in Sanya said they had never allowed any form of gambling and had shut the bar down, pending the full results of an investigation conducted with the local police.

A public relations executive at the Mangrove Tree, Belinda Chen, declined to confirm whether authorities had launched a probe into the bar. She said it had been closed since this morning due to an air-conditioning fault.

"It has been closed for maintenance," she said by telephone. "I can't talk about this more. I have no further details."

A company source based in Beijing said the Reuters report had attracted significant attention, but reiterated that the Mangrove Tree is not involved in anything illegal. The source also said the casino was closed for maintenance purposes.

Reuters was unable to determine what Mangrove Tree had listed on its operating documents or whether the facility was experiencing difficulties with its air conditioning.

A propaganda department official surnamed Lu in Hainan's provincial government office said that casino gambling wasn't allowed on Hainan island.

Mangrove Tree Resort owner Zhang wasn't reachable for comment, nor was Chen Xuhua, the president of Beijing Mangrove International Hotels & Resorts.

Other casino operators had also been eyeing Sanya Bay. MGM Resorts International (MGM.N) opened a hotel there last year and Caesars Entertainment Corp (CZR.O) is set to open a hotel in 2014. (Reporting by James Pomfret and Farah Master; Editing by Michael Urquhart)