Government officials say Indonesia's Salim group is looking to develop the land in coordination with Indian state-run refiner Indian Oil Corp.

Nayachar was chosen after a plan to develop farmland in nearby Nandigram along the West Bengal coast met with protests from the farmers whose land was to be taken over. That plan was shelved after police fired on protesters in March, killing 14.

But the environmental cost of the Nayachar project has provoked more protests from opposition groups, and drew flak from members of the communists own ruling alliance, who say a proper environmental assessment needs to be carried out.

Conservationists say the plan could kill marine life, including hundreds of endangered river dolphins, and rob thousands of fishermen of their livelihoods by polluting the Hooghly River delta leading out into the Bay of Bengal.

About 3,000 people live on the 64 sq km (25 sq mile) island, most involved in fishing.

The ecosystem will be damaged even by treated effluent from the chemical factories, which will be spread far by the tides, said Ramapati Kumar, a toxic effect expert for Greenpeace.

"When you do it in a sensitive and biodiverse area like Nayachar, the impact can be enormous, killing rare dolphins and other marine animals," he said. "The Nayachar project will be a disaster if it goes ahead."

NO PROBLEM?

Both Nayachar and Nandigram were chosen partly because of proximity to an existing chemicals complex at Haldia on the coast. But West Bengal's leaders -- the world's longest-serving democratically elected communist government -- deny the area's environment will be spoiled.

"We will take care of all necessary environmental norms and there should not be a problem," Anandadeb Mukherjee, a member of the West Bengal Coastal Authority said, without elaborating.

West Bengal must get permission from the central government to develop the land, which is protected under environmental laws.

The island is owned by the state government. It moved many families there in the late 1980s in a project to stimulate fishing in the area. But the government has not renewed the villagers' lease on their land, and the families will be forced to move on.

West Bengal said it will rehabilitate the affected families, but has not yet given any details.

Heavy industry usually pollutes wherever it is set up, conservationists say, particularly so in India where pollution regulations are not strictly enforced.

Chemical and heavy metals plants in Vapi, a town in western India's Gujarat state, have made it one of the ten most polluted places on Earth, according to a report released last week by the New York-based Blacksmith Institute.

But the strong tides around Nayachar island will spread waste across a much larger area than if the industry was based elsewhere in the state, said Pranabes Sanyal, an environmentalist and member of the National Coastal Zone Management Authority, a government agency.