By Panarat Thepgumpanat and Chayut Setboonsarng

BANGKOK (Reuters) - Thailand's consumer watchdog has cleared Chinese EV maker BYD of wrongdoing over its discount practices that have prompted complaints from BYD owners and a subsequent probe by the agency, two sources familiar with the matter said.

The government in July launched a probe into BYD's local distributor, Rever Automotive, after a complaint alleged they had asserted vehicle prices would rise after a discount campaign ended, but instead they cut prices further soon after -- by as much as 340,000 baht ($9,000).

BYD holds a 20% stake in Rever.

Such practices had misled consumers and left many feeling short-changed, buyers had said in their complaint.

The probe by the Consumer Protection Board concluded that BYD's discounting did not violate advertising law, said one of the sources who has direct knowledge of the matter.

"The price cuts announced coincided with actual discounts," the person said. The sources declined to be named because the information is not public yet.

The Consumer Protection Board did not respond to a Reuters request for comment.

The board, however, fined its local distributor Rever Automotive and one of its executives a total of 120,000 baht for a separate infraction of not disclosing the prices of giveaways, senior board official, Thitinan Singha, told Reuters.

Rever and BYD did not respond to requests for comment.

A customer backlash against its vehicles in Thailand, one of BYD's biggest overseas markets, comes as the auto sector is grappling with a sharp decline in consumer demand for vehicles there due to rising household debt.

On Thursday, BYD announced another price reduction of its Atto 3 and Seal models by as much as 400,000 baht ($11,700).

In China, BYD has asked its suppliers to cut their prices, a local media reported, in a sign that a brutal price war is set to escalate in the world's largest auto market.

Most Thai customers want to be compensated with the difference from the discounted price, said senior agency official Passakorn Thapmongkol.

Nuntipak Tarnvimonkarn, who bought a BYD vehicle in 2022 that has seen its sale price drop by over 400,000 baht, said that he and about ten others were planning further legal action.

In an attempt to appease disgruntled owners, BYD has offered a 50,000 baht cash-back programme for new vehicle purchases and free use of its charging stations.

($1 = 34.2700 baht)