DHAKA (REUTERS) - Bangladesh urged on Saturday urged the European Union not to take tough measures against its economically crucial textile industry in response to the collapse of a garment factory that killed nearly 550 people.

Bodies were still being pulled from the ruins on Saturday as tearful families stood by waiting for news of victims of the country's worst ever industrial accident.

The European Union, which gives preferential access to Bangladeshi garments, had threatened punitive measures in order to press Dhaka to improve worker safety standards after the collapse of the illegally built factory on April 24.

The disaster has put the spotlight on Western retailers who use the impoverished South Asian nation as a source of cheap goods.

About 4 million people work in Bangladesh's garment industry, making it the world's second-largest apparel exporter after China. Some earn as little as US$38 a month (S$47), conditions Pope Francis has compared to "slave labour".

Duty-free access offered by Western countries and low wages have helped turn Bangladesh's garment exports into a US$19 billion-a-year industry, with 60 per cent of clothes going to Europe.

"If the EU or any other buyers impose any harsh trade conditions on Bangladesh it will hurt the country's economy ... millions of workers will lose their jobs," Mr Mahbub Ahmed, the top civil servant in Bangladesh's Commerce Ministry, told Reuters.

The government has not received any formal notification of punitive action from the EU or any other country over the deaths, he said.

Authorities have arrested nine people in connection with the collapse, including an engineer who had raised safety concerns about the eight-story complex a day before the disaster.

On Saturday, verses from Islam's holy book the Koran were read out for the souls of the victims, as the stench of decaying bodies hung in the air around the site.

"The bodies that are coming now cannot be identified. The clothes the victims were wearing are also damaged, the faces are decomposed," Mr Mohammad Masum, a volunteer rescue worker at the site in Dhaka's suburbs told Reuters Television.

The collapse was the third deadly incident in six months that raised questions about worker safety and labour conditions in Bangladesh. Human-rights groups say there has never been a case in which a factory owner was prosecuted over the deaths of workers.

"After this accident we are very scared and worried about such an accident happening at our factory," said garment worker Farida Parveen.

"We have demanded that the government take action and examine all factories so that we can all work in a good environment."