Residents from Kolontar -- one of the villages hit by a massive wave of toxic sludge on October 4 -- have been given permission to return home now that a system of dykes has been built to prevent any further spills from a seeping residue reservoir at a nearby alumina plant.

"Everything is ready for the residents of Kolontar to return to their homes," a spokeswoman for the disaster relief services, Gyorgyi Tottos, told AFP.

The villagers have been housed in a sports centre in the nearby town of Ajka since being evacuated a week ago due to the threat of a second spill of toxic sludge engulfing the area and the need to build the dykes.

"Hope dies last, so I am still hoping for the best even though I have lost everything," said 84-year-old Ferenc Farkas as he boarded one of the waiting buses.

"I was born in Kolontar and I am going to die here, I have never thought about leaving," Farkas said.

The villages of Kolontar and Devecser were the hardest hit when a residue reservoir belonging to MAL Hungarian Aluminium Production and Trade Company burst, sending a tidal wave of toxic red sludge across an area of 40 square kilometres (15.4 square miles), polluting the Danube River and its tributaries.

The accident, described by officials as an ecological disaster, killed at least nine people, injured 150 and left hundreds more homeless.

Jozsef Holczer said his house had to be demolished to make way for the new dyke and so he would at least be compensated for that.

"I am going to get some money for my house they demolished, but I am not sure if I get anything for the rest of the things I have lost," he said, while waiting for a lift back to the village.

By Friday afternoon, some 300 of the 800 people evacuated had returned to Kolontar.

Also Friday, the alumina plant, which was shut down after the accident, resumed production, although with some delay due to "administrative problems," according to Timea Petroczi, a spokeswoman for the disaster relief services.

It was expected to reach its normal capacity within four days, she added.

MAL has been placed under government control since the disaster. But because it is one of the major employers in the impoverished region, there was concern that locals would lose their jobs and livelihoods if the plant stayed out of operation for too long.

"I wish the factory would never have to restart again. But we wouldn't want the thousands of people who work there to lose their jobs either," said Katalin Szaldi, 63, who was also returning to Kolontar.

"My house was undamaged. But it's still worth nothing now. Who would be crazy enough to want to live here after all this?" she asked.

"We have no choice, we just have to go back."

Police roadblocks remain in place in Kolontar, with only the villagers allowed to pass, but no press or media.

Environmental group Greenpeace slammed the decision to allow the villagers to return as "irresponsible" until the exact causes of the accident were established.

Greenpeace also warned after an analysis of the mud that if the sludge dries out and is converted to dust, it will pose a huge health risk.

The finer the particles of dust, the deeper they can enter the air ways, threatening the lungs and entering the blood supply, it said in a statement.

"The fine particle time bomb is ticking," Greenpeace spokesman Herwig Schuster said.

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