Italy's government on Tuesday placed a troubled steel mill temporarily into administration amid a long-running legal dispute over toxic pollution in a move that was immediately criticised by the main industry association as a dangerous precedent.

The measure, which takes effect immediately but still has to be confirmed by parliament, would last between 12 and 36 months and would take control of the giant Ilva plant in Taranto in southern Italy from its owners, the Riva family.

A cabinet meeting also decided to name as administrator Enrico Bondi, an experienced official who has already worked for months on the Ilva case and helped rescue the dairy giant Parmalat after its disastrous collapse in 2003.

Antonio Gozzi, head of Federacciai, the main steel industry lobby, said the decision was "mistaken and disproportionate" and "a very dangerous precedent" for Italian industry as a whole.

The draft decree adopted by the cabinet would enable the state in extraordinary cases to take over businesses with "national strategic interest", the government said in a statement.

This would only apply in cases of "grave and significant dangers for the environment and health caused by a failure to observe environmental" regulations, the statement said.

Economic Development Minister Flavio Zanonato said the bill was "not an expropriation but an administration with precise targets after which the current shareholders will remain the owners".

Zanonato earlier warned that the site was threatened with closure in the current situation, which would cost the Italian economy some 8.0 billion euros ($10.5 billion) a year.

Prosecutors last month ordered the seizure of 8.1 billion euros in assets from the Rivas, after which the board of Ilva resigned in protest.

The Taranto plant and other Ilva facilities around Italy employ a total of around 24,000 people and a total of 40,000 steel sector jobs are affected.

Italy has western Europe's biggest steel sector and the Riva Group as a whole accounts for around 80 percent of production in the country.

The Rivas are being investigated for alleged tax fraud and causing "an environmental disaster" by ignoring environmental laws for decades.

Parts of the Taranto plant have been shut down by prosecutors to prevent more pollution, which has been blamed for a rise in cancer cases in the area.

The Taranto plant used to churn out an estimated nine million tonnes of steel per year -- around a third of the country's total production.