A dispute over Europe's biggest steel plant could damage Italy's credibility and risks much-needed overseas investment.
The privately owned ILVA plant, which employs 12,000, was partially closed by prosecutors amid concerns that noxious fumes were seriously harming the health of workers.
The Italian government, however, maintains the plant, in southern Italy, should be kept open to protect jobs at a time of record unemployment.
"The ILVA situation risks creating uncertainty not just over ILVA in Taranto but about the Italian business climate in general as well as how reliable Italy is for the foreign investment we wish for to boost our country," Environment Minister Corrado Clini told a lower house and senate environment commission hearing.
The dispute over the plant in the southern city of Taranto poses a dilemma for Prime Minister Mario Monti's government as it seeks to steer Italy through a deepening economic recession.
ILVA is one of few large industrial plants in Italy's impoverished south and its closure would put thousands of jobs at risk, but the case has also highlighted the deadly effect of widespread pollution in the region.
A health ministry study has shown cancer death rates around the Taranto area were 15 per cent higher than in the rest of the country, with lung cancer rates running 30 per cent higher.
The government has called for a solution to the dispute that reconciles employment with environmental and health issues.
Clini maintains the plant should be kept open as interrupting its production will in fact harm the environment, because the company would then not have the necessary funds to invest in cleaner technology.
"Keeping open ILVA's production line guarantees a programme of environmental reform," he told the hearing, whereas going ahead with the closure order "could create environmental problems as well difficulties with jobs and the economy".
The government said earlier this week it could appeal to the constitutional court against the judicial ruling, which ordered the plant to stop some production while making court-mandated improvements to its production line.
Clini indicated the court had overstepped its authority in ordering the closure, saying that environmental protection was a matter for European law, but he played down the idea of a clash between the Italian government and the judiciary.
"This is an issue of the clarity of roles, responsibilities and jurisdictions that is all the more urgent today given all the efforts we are making towards economic growth," Clini said.