Rescue workers have evacuated a Hungarian village due to a heightened threat of a second flood of toxic red sludge from a broken reservoir at an alumina plant.

A weakened wall in the reservoir from which one million cubic metres of sludge flooded several nearby villages, fields and waterways skirting the Danube river earlier this week is in danger to collapse.

Authorities evacuated 800 inhabitants from the village of Kolontar to the town of Ajka, Hungarian disaster agency spokesman Tibor Dobson confirmed and Kolontar has been sealed off.

Hungary declared a state of emergency in three counties after sludge from the alumina plant flooded three villages on Monday about 160 km (100 miles) west of Budapest, killing seven people and injuring around 150.

"Last night the interior minister informed us that cracks have appeared in the northern wall of the reservoir, whose corner collapsed, which make it likely that the entire wall will collapse," Prime Minister Viktor Orban told a news conference.

"Thank God, we have managed to rescue the large majority of people after the dam burst on Monday, but the region has been practically destroyed," Mr Orban said.

Speaking in Ajka, he said another 500,000 cubic metres of sludge could escape the reservoir but this substance would be thicker than the initial tide of the corrosive, caustic waste material.

The spill from the Ajkai Timfoldgyar plant could have been avoided and there will be "the toughest possible consequences" to ensure such a disaster does not recur, Mr Orban said.

In remarks carried by private broadcaster HirTV, he said a decision on whether to allow the plant to resume bauxite refining would not be made before Monday.

Mr Orban said the government was ready to foot the entire bill of the rescue and recovery effort, but it was too early at this stage to make precise estimates about the size of the damage.

Earlier today, Gyorgy Bakondi, head of the National Disaster Unit, told the daily Magyar Nemzet in an interview the final bill could top 10 billion forints (€36.25 million).

He said checks were made of all similar reservoirs in Hungary. Mr Orban said Hungary had launched a disaster relief fund, which accepted contributions from Hungarians across the world.

Mr Orban, who called the spill Hungary's worst ecological disaster to date, said there was now a high risk of up to 500,000 cubic metres of even thicker sludge escaping the reservoir due to a deterioration of a wall in the stricken part.

"The detached parts of the dam are growing apart, the distance between them widened by 7 cm from late last night until this morning ... so it is very likely that we have to reckon on this wall collapsing," Orban said in the town of Ajka, where the alumina plant that owns the reservoir is located.

He said the central European country had the tools needed to stop any new contamination from reaching the Danube via smaller rivers in case of another spill.

The national news agency MTI said crews were building a new 4- to 5-meter (13- to 16.5-foot)-high dam in Kolontar to shield it against any fresh burst of sludge from the broken reservoir.

It said disaster crews were also poised to evacuate Devecser, with 5,400 people, if necessary.

Many people suffered from burns and eye ailments caused by caustic and corrosive elements in the sludge. There were still no estimates of the financial damage caused by the sludge and the cause of the accident remains unknown.

All life died in the nearby Marcal River, the first to be struck by the sludge. There was sporadic fish death in other rivers. There were no reports of serious damage to the main branch of the Danube, a major European waterway.

Reuters