WASHINGTON (Reuters)—A Senate committee voted on Wednesday to eliminate any limit on the amount of liability oil companies would face as a result of offshore oil spills like the one now devastating the Gulf of Mexico.

The committee voted to eliminate the current $75 million cap on the amount of compensation companies would pay local communities for economic losses and the impact of offshore spills on natural resources.

The change, if approved and made law, would apply retroactively to BP P.L.C.'s massive Gulf spill, although the company already has said it would cover all costs, which will run into the billions of dollars.

With millions of gallons of oil being dumped by the BP spill into the Gulf of Mexico and onto fragile coastal zones, Democrats in both the Senate and House of Representatives have made the liability legislation a top priority.

It could be passed by both chambers as soon as next month, with President Barack Obama's backing.

BP has agreed to establish a $20 billion compensation fund to pay claims from its April 20 spill, which continues to devastate communities, businesses and the environment along the Gulf Coast.

But total liabilities are expected to easily eclipse that sum.

Kenneth Feinberg, the official overseeing the fund, said he expected to complete the first phase of work in setting up the claims facility within the next 30 days.

Republicans call it costly

BP's spill prompted Democrats to move quickly to eliminate the liability limit. Initially, they were pushing for a $10 billion cap, but were convinced by the Gulf of Mexico spill that a more ambitious approach was necessary.

Senate Republicans blocked earlier efforts to pass this legislation in the full Senate using a fast-track procedure.

"Shielding companies from responsibility for damages sends the wrong signal," said Senate Environment and Public Works Committee Chairman Barbara Boxer, D-Calif. "Taxpayers should not be responsible" for covering the costs of offshore oil company disasters, the California Democrat said at the start of her panel's work session on the bill.

But Republicans, as they have done for several weeks, opposed the measure, saying it would prevent smaller companies from offshore drilling projects in the Gulf of Mexico, which holds the most promising untapped crude oil reserves in the United States. It could open the door to more foreign operators, such as Chinese companies, Republicans said.

"Drilling will be so costly that only a few will be able to afford it," said Sen. James Inhofe, R-Okla., the senior Republican on the committee. "Who are those? Big Oil," he said.

Instead, he offered an alternative that would have given the president the discretion in setting liability limits on a case-by-case basis.

Deepwater drilling in the Gulf of Mexico has been the biggest hope for growth in U.S. domestic oil production over the past decade. A string of major discoveries over the past 10 years by companies, including BP, have rejuvenated investment in deeper and more difficult waters.