Environment Minister Siv Fridleifsdottir has approved the construction of the plant and dam above Vatnajokull - Europe's largest glacier - in East Iceland. Opponents of the project fear the decision to construct the plant is linked to the plans for a smelter, which could produce 420,000t of aluminium annually by 2010, at Reydarfjordur on the east coast.
Environmentalists have opposed the smelter, which has been proposed by the Norwegian company Norsk Hydro.
The World Wildlife Fund (WWF) has also criticised the government's decision to allow construction of the dam and power plant, despite the inclusion of ten conditions to mitigate environmental concerns. The proposed dam will divert a river from Vatnajokull and will affect an estimated area of 7000km2 according to environmental groups.
