"Uruguay is being damaged by the actions of environmental groups on the other side of the river," President Tabare Vazquez said. "Our economy has already been hurt."

The Uruguayan leader did not provide any figures detailing the impact of the protests, which have raised diplomatic tensions between the neighbors.

The mills, to be built by Finland's Metsa-Botnia and Spain's Ence, are expected to produce 1.5 million metric tonnes of wood pulp for export.

But the project has set off months of protests in Argentina's Entre Rios province by environmental groups and ordinary citizens worried the paper mills will contaminate the region's farmlands, damage wildlife and choke off tourism.

The province is across the river from the planned site.

The companies contend any pollutants from the plants would be within internationally accepted levels.

The protests have intensified in recent weeks, virtually paralyzing traffic at the height of the tourist season in Uruguay, a popular vacation spot for many Argentines.

Vazquez said he had recently spoken with Argentine President Nestor Kirchner and assured him the project would comply with environmental norms.