* Sellafield tells non-essential staff to stay at home
* Later says natural radon gas caused alert, no operating problem
* Britain says no danger to the public or workers
SELLAFIELD, England, Jan 31 (Reuters) - Sellafield, the largest nuclear site in Europe, declared an alert on Friday after discovering higher than usual levels of radioactivity, but later called it off, saying naturally occurring radon gas had triggered the alarm.
The fuel reprocessing plant in northwest England, the site of Britain's worst nuclear accident in 1957 and once the producer of plutonium for nuclear bombs, told non-essential staff to stay away after the abnormality was detected overnight.
The plant's operating company said there was nothing wrong with its operations, but for several hours the cause of the higher reading at an air monitor near a perimeter fence was unclear, raising fears of a radioactive leak.
Before midday, the operating company, Sellafield Ltd, said it had found that radon, a naturally occurring radioactive gas that comes from rocks and soil, was the cause.
"This is a very rare occurrence and the alert is over. Everything will be back to normal on Saturday," said a spokesman from the Nuclear Decommissioning Authority (NDA), the public sector body that owns the site.
The ageing facility, by Britain's picturesque Lake District on the coast of the Irish Sea in northwest England, continued to operate normally during the morning and the operator and the government said there was no risk to the public.
It was the first time local inhabitants could recall staff being sent home.
"It worries everyone but we try not to panic," said Robyn Turner, 42, who works in a supermarket in the nearby coastal village of Seascale. "You just have to trust that they know what they're doing."
Managers at Sellafield, a large, fenced-off site of grey buildings, industrial cylinders and cooling towers about 300 miles (480 km) northwest of London, said the decision to keep staff at home was conservative but "prudent".
Set up after World War Two, Sellafield was once the source of plutonium for Britain's nuclear bombs.
It was also the site of Britain's worst nuclear accident, the October 1957 Windscale fire, when a plutonium reactor burned for five days, belching radiation into the atmosphere.
Sellafield is now the site of a civilian nuclear power station being decommissioned by a consortium of UK company Amec , France's Areva, and U.S. firm URS.
One of two nuclear fuel reprocessing plants in Europe along with Areva's La Hague plant in France, Sellafield also receives spent fuel from power plants across the world, including Japan. It employs more than 10,000 people.
Nuclear experts and academics had said initial information available publicly indicated this was a minor incident with little in common with the 2011 Fukushima and 1986 Chernobyl disasters.
"This is a prudent precaution until the cause is known and the situation rectified," said Richard Wakeford, a professor of epidemiology at the University of Manchester, of the initial decision to withdraw non-essential staff.
"It's a different situation here than it was at Fukushima and Chernobyl because you haven't got operating reactors."
But the increased radiation reading, even from radon, could increase scrutiny of Sellafield's safety record.
David Webb, chairman of the Yorkshire division of the Campaign for Nuclear Disarmament (CND), said any incident was always worrying because it raised concerns about standards.
"They will always say there is no risk but you can rarely prove a direct connection between such incidents and people's health," he told Reuters, citing reports indicating there had been 21 leaks at Sellafield in the past 60 years.
Environmental group Greenpeace says Sellafield has the highest concentration of radioactivity on the planet and that its reprocessing plants discharge some 8 million litres of nuclear waste into the sea each day.
It also contains what its deputy managing director George Beveridge described in 2009 as "the most hazardous industrial building in western Europe", housing a 150-metre-long (490 feet) pond used to store spent nuclear fuel.
In April 2005, leaked radioactive waste was discovered from Sellafield's THORP reprocessing plant which may have started as early as August 2004. It was categorised as a level 3 event on the International Nuclear Event Scale and resulted in fines.
British Prime Minister David Cameron has thrown his weight behind building new nuclear power stations as a way to replace ageing coal and nuclear power plants.
The government last year signed a $26 billion deal to build a new nuclear plant in southwest England with the support of France's EDF and two Chinese partners.
NuGen, a nuclear new build joint venture between Japan's Toshiba and France's GDF Suez, owns a site adjacent to the Sellafield reprocessing plant to build a new nuclear power station. The group wants to build three reactors on the site, the first scheduled for service in 2024.