Papua New Guinea's government wrested full control of the controversial Ok Tedi copper and gold mine and quashed former owner BHP Billiton's legal immunity for environmental damage, officials said Thursday.

Prime Minister Peter O'Neill moved late Wednesday to give the government 100 percent ownership of Ok Tedi, which was involved in a major waterways pollution scandal in the 1990s.

Original owner BHP wanted to shutter the mine but it was so lucrative to PNG the government brokered a deal for it to remain open, offering the Anglo-Australian resources giant an exit package that included immunity from prosecution for the damage.

Under the 2001 deal BHP offloaded its majority stake to a Singapore-based charitable trust called PNG Sustainable Development Program (PNGSDP) Limited, which administers ongoing profits from the mine to development projects in pollution-hit Western Province.

The PNG government -- until Wednesday -- owned the remaining 37 percent stake in Ok Tedi.

In exchange, BHP was protected from compensation claims by landholders for the damage from the collapse of its tailings dam and the flow of hundreds of millions of tonnes of waste into local waterways, inundating villages and destroying vast tracts of forest.

O'Neill ripped up that immunity on Wednesday, opening the door to compensation claims with new laws cancelling PNGSDP's shares in Ok Tedi to give the PNG government full control.

BHP Billiton were critical of the move, accusing the PNG government of a "lack of good faith" by winding back the immunity deal.

"The removal of protections that were legislated for BHP Billiton at the time that it gifted its shareholding to PNG raises squarely the question of sovereign risk for PNG," a BHP spokeswoman told AFP.

"We remain confident that we have other indemnities in place and that our shareholders are not exposed to potential claims."

A PNGSDP spokesman told AFP legal advice was being sought on the move, which chairman Mekere Morauta condemned as a "blatant grab for power and money" that would have serious consequences for the resource-rich Pacific nation.

"We have a duty to the people of Western Province who own the mine and receive the dividends paid to PNGSDP in the form of social and economic development to protect their rights and their assets," Morauta said.

"I guarantee them that we will do all that we can."

O'Neill said the government had been attempting to negotiate the purchase of the Ok Tedi shares from PNGSDP but talks had broken down, in a strident speech which saw lawmakers unanimously vote 62-0 in favour of the new laws.

"This parliament has done gross injustice to our people, denying their right to have access to have their say and have their claims against the damage that was done to the environment and themselves," O'Neill told parliament, according to Australian media reports.

"This proposed bill now removes that waiver for BHP Billiton, meaning that the land owners or any other affected party are free to bring any action or enforce any right."

PNGSDP estimates the mine to be worth some two billion kina ($804 million), plus 450 million kina in annual dividends to the local people, and has described the government's takeover as legally and morally unacceptable and unconstitutional.

There is also $1.4 billion in a long-term fund earmarked for development 40 years after the mine closes, which PNGSDP's Morauta -- prime minister at the time the immunity for BHP was approved -- said he feared the government also wanted to get its hands on.

"The international perception will be that no company's asset or investment is safe, that PNG is not a good place to invest," he said this week.