"Around 400 hectares (almost 1,000 acres) of the affected area flooded with mud is now declared a 'disaster area' and not fit for habitation," said Djoko Kirmanto, minister of public works, reading from directions given by the president.

"Almost 3,000 households from four villages will be resettled and will be given money to rent a house for two years," he said after Yudhoyono met with the government team appointed to tackle the problem.

More than 12,000 people have already been forced from their homes in Sidoarjo district since the disaster began.

For four months, steaming mud has been spewing from the earth near an exploratory gas well operated by Lapindo Brantas, owned by the family of Indonesia's welfare minister.

Experts have warned they cannot predict when the outpouring might end.

"About 1.5 trillion rupiah (164 million dollars) will have to be spent by Lapindo for the installation of pumps and construction of dykes," said Basuki Hadimuljono, who heads the government-appointed disaster management team.

He said some 126,000 cubic metres of mud were oozing from the earth daily. Engineers have been struggling to contain the sludge -- which reaches as deep as five metres (yards) in some areas -- by building a series of dykes.

"The budget will solely be shouldered by the company and no state budget will be used. This amount does not include costs for relocating people and the realignment of the road, train tracks and pipes," added Hadimuljono.

Kirmanto said that a key toll road linking Indonesia's second city of Surabaya to the rest of Java, gas pipes under the road as well as train tracks, would be shifted as a result of the disaster.

Some of the mud would be channelled into a nearby river and the sea -- which could later be used as reclaimed land -- and some used by the construction industry, he said.

Siti Maimunah, the national coordinator of Jatam, a watchdog of Indonesia's mining industry, said the public needed to know more information about what the risks of shifting the mud into the sea were.

She said contradictory reports about the toxicity of the mud needed to be clarified by the government.

"Stop fooling the public by saying that there is nothing wrong with the mud. The massive volume in itself poses huge risks to the environment and people's health," she told AFP.

Earlier Wednesday, environmental group Greenpeace dumped hundreds of kilograms of mud brought from the disaster zone outside the office of welfare minister Aburizal Bakrie in an eye-catching protest.

Bakrie's office was blocked for more than an hour to give him "a taste of the mud", Greenpeace Southeast Asia executive director Emmy Hafild told AFP.

"It is utterly shameless for the minister to distance himself from the disaster when his corporate group owns the controlling shares of this operation," said Hafild.

The company has been offering limited compensation to affected families but has also blamed an earthquake in nearby Central Java, which occurred a few days before the mud started flowing, for the catastrophe.

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