The court Monday found no "reason to restrict construction at this stage as non-construction may endanger the safety of the dam," said lawyer Shanti Bhushan, who represented activists opposed to the project, quoting from the ruling.

"We have been asked to respond at the next hearing of the court which is in September."

The ruling followed Prime Minister Manmohan Singh's plea to the court on Monday that it would be inappropriate to stop work on the dam, Bhushan said.

A panel appointed by Singh reported last week that efforts to resettle people displaced by the construction were progressing satisfactorily.

"I am of the view that it would not be appropriate in light of the material and observation contained in the report to pass any direction or order at this stage stopping the construction of the dam which is designed to serve larger public interest," the Press Trust of India news agency quoted Singh as telling the court.

The government panel "seems to have given a fairly accurate picture of the facts and circumstances as they obtained on the ground," the premier said.

Activists opposed to the Sardar Sarovar dam -- on the Narmada river which flows through the states of Madhya Pradesh, Gujarat and Maharashtra -- say raising its height from 110 metres (363 feet) to 121.92 metres (402 feet) will displace thousands of people, mainly poor tribal farmers.

The Narmada Bachao Andolan (Save the Narmada Movement) also argued that many of those already made homeless had not resettled or found jobs.

The UN says more than 24,000 families in 177 villages in Madhya Pradesh alone will be displaced if the height of the dam is increased.

But states including Gujarat and Maharashtra contend that raising the height of the dam will irrigate 200,000 hectares (490,000 acres) of barren land and produce nearly 1,500 megawatts of electricity every day.

The Supreme Court, which six years ago banned fresh construction at the Sardar Sarovar site until the displaced villagers are adequately resettled, in April gave a conditional go-ahead for the multi-billion dollar project.

The court had warned the government that it would halt work if displaced populations were not compensated as promised.

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