"Let me be clear: Norfolk Southern will pay for cleaning up the mess they created and for the trauma they've inflicted on this community," Michael Regan, the head of the Environmental Protection Agency (EPA), said in a statement.
The February 3 cargo train derailment in the town of East Palestine sparked a massive fire and triggered the release of toxic fumes, including from vinyl chloride, a colorless gas deemed carcinogenic by the US National Cancer Institute.
Several thousand residents were evacuated as authorities assessed the danger.
"The Norfolk Southern train derailment has upended the lives of East Palestine families, and EPA's order will ensure the company is held accountable for jeopardizing the health and safety of this community," Regan said.
"To the people of East Palestine, EPA stands with you now and for as long as it may take," he added.
The legally binding EPA order requires Norfolk Southern to identify and clean up contaminated soil and water resources and reimburse the EPA for cleaning services offered to residents and businesses.
The EPA said it will approve a plan outlining all of the steps necessary to clean up the environmental damage caused by the derailment.
"If the company fails to complete any actions as ordered by EPA, the Agency will immediately step in, conduct the necessary work, and then seek to compel Norfolk Southern to pay triple the cost," the EPA said.
In a statement, Norfolk Southern said "we recognize that we have a responsibility, and we have committed to doing what's right for the residents of East Palestine.
"We have been paying for the cleanup activities to date and will continue to do so," it said. "We are committed to thoroughly and safely cleaning the site, and we are reimbursing residents for the disruption this has caused in their lives."
The company also said it was going to "learn from this terrible accident and work with regulators and elected officials to improve railroad safety."
According to the authorities, tests have shown that the air is safe and no pollutants have been detected in the municipal water system.
Many residents remain concerned, however, and some have reported headaches and expressed fears they may develop cancer at a later date.
The 150-car train was shipping cargo from Madison, Illinois, to Conway, Pennsylvania, when it derailed.
The accident resulted in the derailment of 38 cars, 11 of which were carrying hazardous materials, including vinyl chloride, butyl acrylate and other chemicals, according to the National Transportation Safety Board.
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