Malaysia plans to extend Lynas Corp's licence to operate a rare earths processing plant, though it could be for a shorter duration than the usual three years, two sources with direct knowledge of the matter said.

The Australian company has been running the plant in Malaysia since 2012 using rare earths mined from Mount Weld in Western Australia, despite a dispute over the removal of low-level radioactive waste produced by the plant.

A decision to extend the licence by a Sept 2 deadline is important for the market for rare earths, as Lynas is the biggest producer outside China. Beijing has in the past tightened supply of the materials, used in everything from military equipment to high-tech consumer electronics.

The sources, who declined to be named ahead of a government announcement expected by mid-August, told Reuters that the precise duration of the extension was not yet finalised.

Lynas, which sells most of its products to Japan, declined to comment.

The prime minister's office did not immediately respond to an emailed query seeking confirmation of the licence extension.

The company said in June it was stockpiling production of rare earth element Neodymium Praseodymium (NdPr) for strategic customers amid China-US trade tensions that have stoked concerns that Beijing could curb rare earths exports again.

Yeo Bee Yin, Malaysia's minister for energy and the environment, said on the weekend that Prime Minister Dr Mahathir Mohamad's cabinet had made a less-than-ideal decision on Lynas and that a detailed announcement would be made later this month.

"I have to say this decision made is not the most ideal in my view but I have made my suggestions," she told reporters. "It's far better than the status quo."

The company's shares fell as much 5.6 percent on Monday after online news portal Malaysiakini said, citing one unnamed source, that a decision on the licence could be delayed by as much as six months.

Lynas has already offered to shift the waste, which some ruling coalition politicians have called hazardous, to "disused mines" in the state of Pahang where the plant is located.

"I still believe that Lynas should not be allowed to operate and continue to generate radioactive waste that will have long-term negative effects," member of parliament and opponent of Lynas' plans, Fuziah Salleh, said in a statement on Sunday.

- Reuters