Argentina has raised fierce objections to the mills on the grounds they will use 86m litres of water a day from the Uruguay river, which the countries share, and heavily pollute the surrounding area.

Dubbed the "pulp war", the trouble reached fever pitch recently after Argentinian President, Nstor Kirchner, led a protest with his entire cabinet and 100,000 people against the plans.

It is reported that with a projected annual production rate of 1m tonnes of bleached eucalyptus pulp, the mills will require 15% of Brazils annual timber supply.

Uruguay said the mills, in Fray Bentos, are its largest-ever industrial investment and will boost GNP by 1.6% and provide much-needed work for thousands.

Botnia, a Finnish resource company owned by M-real and UPM, and Spanish firm Ence, are the key investors in the mills and say the proposals meet European standards as well as those of environmental regulators in Uruguay.

These assertions have done little to placate Argentina. On television President Kircher condemned "first world companies that offer to create jobs in poor countries at the cost of environmental degradation".

Earlier this month Argentinas Samba Queen, Evangelina Carozzo, stormed an international summit in protest and streaked in front of world leaders, including Tony Blair, for Greenpeace.