Myanmar cancelled a proposed coal-fired power plant at a Thai-led industrial site Monday citing "environmental problems", an energy official said, in the latest sign of burgeoning reform.

The move echoes a decision to halt an unpopular Chinese-backed mega dam last year as Myanmar's nominally civilian leadership looks to demonstrate its democratic credentials after taking power from the ruling junta in March.

Electricity minister Khin Maung Soe said the decision not to allow the power plant, part of the huge Dawei Development Project, was made after "listening to the people's voice", a senior official at the Yangon city electricity supply board told AFP.

The multi-billion-dollar development in the south, run by industrial giant Italthai Group, had sparked activists' fears about a potential influx of "dirty" industry and the displacement of thousands of people.

Thin Aung, director general of the Thai company's Dawei development arm, said his group was not aware of such a decision, adding that a meeting between officials from Thailand and Myanmar on Saturday "went well".

He said activists were "exaggerating" the risks of the plant.

"We have consulted with Chinese experts. I have to say there is no 100 percent safe coal-power plant but it will be safe enough, so there is nothing to be worried about," Thin Aung said.

Plans for the site also include a deep-sea port, steel mill, fertiliser plant and oil refinery -- potential boons for energy-hungry Thailand -- and is likely to transform the sleepy coastal area facing the Indian Ocean.

Italthai last year said about 10,000 people would be uprooted by the development, but insisted they would be provided with new settlements.

Myanmar's army-backed government has surprised observers in recent months with gestures including talks with democracy icon Aung San Suu Kyi.

In September, new President Thein Sein ordered work on the huge $3.6-billion Chinese-backed Myitsone Dam to stop after local pressure, sparking anger in Beijing.

China has given diplomatic support to internationally isolated Myanmar and is its biggest foreign investor, followed by Thailand.

The Yangon official said the electricity minister had suggested another source of power for the factory would have to be found, adding the country would "seriously think" about using coal in other plants.

Italthai's Thin Aung said the initial proposal would be to build one coal and one hydroelectric power plant to generate electricity for the construction of the wider development.