By Robert Kozak

The Chilean unit of British American Tobacco said it would shut some operations in Chile and seek damages for infringement of its rights after the Congress voted to force cigarettes to be sold with plain generic packaging and to ban flavorings.

"The model of our company's operations in Chile will be seriously affected," the company said Thursday.

Chile's Senate this week approved in a first reading making cigarette manufacturers use generic labeling limited to 30% of the total package, to put health warnings on two sides of the packages and to ban flavorings, such as menthol.

"Generally, the addict doesn't look at the packaging, but the measures will help in stopping people from becoming addicted in the first place," said ruling party senator, Fulvio Rossi, in a debate in the upper house on Wednesday.

British American Tobacco said it would cut at least 20% of its jobs in Chile as a result of Congress's measures, which it said will lead to increased use of illegal cigarettes and a decline of $400 million in tax revenue. The company says it has about 1,000 employees.

The Senate will still have to vote again on the entire proposal, as will the lower house, the Chamber of Deputies, a senate spokeswoman said. The bill was introduced into Congress in 2013, aiming to bring Chile's antismoking legislation into line with tougher international standards.

The company has operated in Chile since 1909 and has an estimated about 90% of the market.

Smoking is widespread in Chile. The World Health Organization says about 40% of Chilean adults smoked at the end of 2012.

"Chile is probably the nation in the Americas with the worst tobacco consumption levels, and we have to confront this," said Deputy Health Minister Jaime Burrows, on the ministry website, on Thursday.

Meanwhile, the lower house of Chile's Congress this week approved a bill to decriminalize the growing of small amounts of marijuana and to allow its use for medicinal and recreational purposes. That bill still has to be approved in the Senate.

Write to Robert Kozak at robert.kozak@wsj.com

Access Investor Kit for British American Tobacco Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0002875804

Access Investor Kit for British American Tobacco Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US1104481072

Subscribe to WSJ: http://online.wsj.com?mod=djnwires