As the main blast furnace at one of Europe's most polluted steelworks belches its last toxic cloud, activist Fabio Matacchiera was the only one there celebrating.

In the impoverished city of Taranto, work that has provoked cancer is preferable to starving.

"Seeing this monster shut down was really emotional, the city should have been here with champagne," says Matacchiera, who has been fighting for 25 years to close the Ilva factory that provides work for around 16,000 people -- and who has been threatened at gunpoint for his efforts.

Here, where red iron oxide dust from the factory stains balconies and tombstones, a full-scale struggle is under way between employees of Europe's biggest steelworks who rely on its operation to put food on the table, and judges who have forced its partial closure on environmental grounds.

Blast Furnace Five will be offline for about a year while work is carried out to bring it into line with European regulations. But in the meantime the mammoth plant, temporarily nationalised this month, continues to produce steel.

Nothing more than a fence separates the smoking chimneys and the nearest houses -- the closest just 200 metres away in the Tamburi quarter, where death notices are plastered on walls amid graffiti of gas masks and poison warnings.

The barrier does little to stop minerals and carcinogenic dioxins from covering the city, where child tumours are up 54 percent and the death rate among under-14-year-olds is 21 percent higher than in the surrounding Puglia region.

Matacchiera, 53, founder of the Anti-Dioxin Fund which raises money for research into the health consequences of Ilva, says tests have shown "even the milk of breastfeeding mothers is contaminated with toxins" from the plant.

- 'Like the Middle Ages' -

But ex-workers like Vincenzo Pignatelli, 62, who smelted steel for 28 years before falling ill with Leukaemia, insist the plant is all Taranto has.

"Four of my co-workers have died of the same disease. Even though my teeth are crumbling away and I may only live another four of five years... I would get my son a job there because it's about survival.

"It's like in the Middle Ages, either you die of hunger or hard work."

Tucked between two bays, the coastal city -- which is also home to a refinery owned by Italy's largest oil company, ENI, and a cement works -- was accountable for 92 percent of the country's dioxin before the steel shutdown began.

The decision to keep Ilva smelting has been a controversial one: the company was put under special administration in 2013, when the Riva family that owned it was accused of failing to prevent toxic emissions from polluting the city.

Prosecutors in Taranto, who say such emissions have caused at least 400 deaths, have placed 50 people under investigation for corruption and environmental damage in a case expected to go to trial later this year.

Prime Minister Matteo Renzi has promised to clean up Ilva and sell it on, and locals cheer support for one of the few large-scale employers in the area -- where the jobless rate stands at 20.6 percent, well above the 12.7 percent national average.

But critics say the industry is in decline, and warn the plant has had its day.

China is the global heavyweight of steel production, churning out 779 million tonnes in 2013 compared with Italy's 24.1 million tonnes, according to the Italian steelworks federation.

But anaemic growth has created a world-wide supply surplus and output is slowing, with production in China down 4.7 percent last year.

The decline will not erase the mark Ilva has already left on the area. A far cry from the region's famed golden beaches, olive groves and baroque towns, the plant's huge red and white chimneys dominate the landscape, its roaring furnaces masking a dismal bill of health.

The company was declared insolvent in January with debts of 2.91 billion euros ($3.19 billion), and is hemorrhaging an estimated 80 million euros a month.

- Off-shore accounts -

Despite clean-up costs of an estimated five billion euros according to environmental agency Arpa Puglia, Renzi has promised just two billion euros for Ilva -- including a state loan and over one billion euros seized from the Riva family.

Most of the Riva money is held by Swiss banks in offshore accounts, and the plant's court-appointed receiver Barbara Valenzano warns those funds may not be easily recovered.

Valenzano says a clean-up that began three years ago has so far seen only the cheapest improvements implemented "at the expense of the costly ones, which would have guaranteed environment and health protection measures".

Three state-appointed commissioners are overseeing Ilva, and the government intends to create a new company. But details are thin on the ground, and workers at the factory gates decried a "chaotic situation" with serious managerial failings.

Italy's anti-establishment Five Star movement has accused the government of creating a 'Save Ilva' decree that favours the banks -- reported to have loaned the company over one billion euros so far.

It has also slammed Renzi for a clause in the decree that gives the commissioners immunity, meaning they cannot be held legally accountable for any shortcomings or errors in the environmental clean-up.

The movement is not the only one to accuse the state of putting Ilva's survival before the health of local residents.

Angelo Bonelli, head of Italy's Green party, has repeatedly called into question state and regional authorities' unwillingness to sound the alarm on a business that has seen high levels of toxins found in locally produced food.

"This is a city ridden with illegality, a city which brings only suffering," he said.