An environmentalist group has protested outside an Australia Day function in Malaysia against a rare earth plant which it claims is producing dangerous radioactive waste.

Opposition parliamentarians also boycotted the event.

Australian miner Lynas Corp started processing rare earths at a plant in the eastern state of Pahang in late 2012, after a delay of more than a year due to strong opposition.

Lynas hopes the $US800 million ($A911 million) plant can help break the Chinese stranglehold on the market for rare earths used in everything from missiles to mobile phones.

About two dozen activists from NGO coalition Himpunan Hijau gathered outside the Kuala Lumpur Convention Centre in the heart of the capital, where the Australian High Commission was holding a function with sponsorship from Lynas to celebrate Australia Day.

Shouting "Stop Lynas!", the activists entered the centre but security stopped them outside the ballroom where the function was taking place.

Senior opposition politician Tian Chua said he and other opposition members of parliament were boycotting the function after they found out Lynas was one of the sponsors.

"We have already stated that Lynas is an unwelcome investment," he said. "It's against our principles."

Protesters staged several large rallies before the plant opened, saying they feared radioactive waste from it could harm residents and the environment.

Himpunan Hijau has also collected more than one million signatures to shut it down. Efforts to block the plant's operation permanently through a court order have so far failed.

The Australian miner has insisted the plant is safe, saying any radioactive waste would be low-level and safely disposed of.