An Italian court Tuesday ordered the country's biggest steel plant to clean up its act but did not call for closure despite fears that chemicals spewed by the unit were behind the high cancer rates in the region.

One of Europe's biggest steel factories, the ILVA plant had become the scene of a fierce stand-off between those who want it closed and thousands of families that depend on it at a time of worsening economic crisis.

The plant is located in the poor southern city of Taranto.

Tuesday's ruling partly reversed a decision by prosecutors in July to shut down the most polluting part of the plant, as the chairman of ILVA said the factory could be kept running while the necessary upgrades are made.

The decision safeguards the jobs of 11,500 workers in the impoverished region. The court also released five of the eight ILVA executives put under house arrest following a health scare investigation.

Environment Minister Corrado Clini, who slammed as "unacceptable to have to choose between bread and poison," said he was confident "the company's efforts and the resources from the government will allow the plant to avoid closure."

Experts had found that chemicals spilling from the plant are behind high cancer rates and cardiovascular and respiratory diseases among workers and locals but the threat to close the plant had sparked protests and angered the country's labour unions.

ILVA chairman Bruno Ferrante, who has been named as the state administrator, will oversee the 336-million-euro ($414 million) clean-up plan funded by the government.

"All the interventions necessary at the ILVA plant can be carried out without interrupting production," Nicola Pirrone, head of the CNR Institute of Atmospheric Pollution Research, said following the court's ruling.

"Turning the chimney stacks off without damaging the plant is a lengthy and costly procedure. It's best that it is avoided. Everything, including installing pollution monitoring systems, can be done with them on," he said.

ILVA, which is owned by the Riva Group, produced nearly 30 percent of Italy's steel output in 2011.

An Italian study last year found that Taranto residents suffered from a "mortality excess" of between 10 and 15 percent, due to the release of dioxin and other chemicals causing cancer, respiratory and cardiovascular diseases.

Environmental association "Taranto Breathes" had hailed the magistrates' initial decision to shut down areas of the plant as "a historic turnaround," praising the courts "for intervening where politics has failed."

But workers backed by Italy's three biggest trade unions had called on the government to protect their jobs, preferring, as one employer told Italian media, "to die of cancer than of hunger."