The Armenian government restarted the Metsamor reactor in 1995 after closing it in 1988 when a nearby earthquake killed 25,000 people. The move came after four years of power cuts which left most of the population without heating through the winters. The plant provides one-third of the country's electricity.

The Russian-built plant has no secondary containment, a safety requirement for all modern reactors, and is close to two major geological faults where large earthquakes are predicted by the country's geological service.

Nuclear fuel for the plant is flown from Russia into the main civilian airport in the capital, Yerevan, because rail links through the neighbouring former Soviet republics of Georgia and Azerbaijan have been cut.

The details of the air shipments are kept secret "to avoid alarming the people", according to Areg Galstyan, the deputy minister of energy. He opposes closing the reactor, saying that $50m (pounds 30m) has been spent on safety improvements at the plant and it is more important to Armenians "to keep the electricity on".

"It was a big mistake to shut the plant in 1988; it created an energy crisis and the people and the economy suffered. It is impossible for the government to cause the same problem again by closing the plant," he told the Guardian.

The plant should stay open until 2016, the end of its original design life, he said.

The EU grant was to help Armenia develop alternative energy to the 440 megawatt reactor, including financing a new gas pipeline from neighbouring Iran and upgrading and developing a series of hydropower projects. The grant would also have paid for the first phase of decommissioning the nuclear plant.

Alexis Louber, the head of the EU delegation in Yerevan, said the pounds 67m of aid would be frozen until the Armenian government gave a definite date for the closure of the power station. "In principle, nuclear plants should not be built in highly active seismic zones. This plant is a danger to the entire region. When the agreement was signed in 1998 to close it in 2004, we wanted to close it as quickly as possible.

"We realise that until alternative energy sources are in place it is not possible to do that, but it might be possible by 2006, and certainly could be by 2010."

He was also alarmed at the method of delivery of nuclear fuel, using Russian transport planes. "It is the same as flying around a potential nuclear bomb. It does not happen any where else in the world; transportation is by sea or rail."

Dr Alvaro Antonyan, president of Armenia's National Survey for Seismic Protection, claimed that Russian scientists had built the power station to resist earthquakes.

The 1988 earthquake, which measured 6.7 on the Richter scale, had not damaged the reactor and it was safe, he said. But he accepted that larger earthquakes could happen there, and that there was a one in 2,000 chance of a shock that might destroy the reactor.

Precise prediction of earthquakes is not possible, but data suggests that stresses are building up in Armenia, and an earthquake of up to five on the Richter scale could be due. The more time passes without an earthquake, the larger the next might be.

Dr Antonyan said: "As a citizen I can say we do not have an alternative power supply, so we should operate the reactor now. As far as the future is concerned, I would say in a seismic area we should not have a nuclear plant."

Gohar Bezprozvannkh, a mother of two who worked at the plant for two years, said: "I fear for my children because I do not think the plant is safe; earthquakes happen here and there is danger. On the other hand, we do not have any options for work, or to keep the lights on. It is impossible."

Martirosian Harazat, who retired from the plant four years ago, having worked there since the 1970s, said: "If they shut the plant we will die of hunger; there is no alternative place to work. People have to eat."