CAJAMARCA, Peru (Reuters) - Peruvian police fired tear gas on Friday to break up a protest at Newmont Mining Corp's proposed $4.8 billion Conga gold mine as the government tried to mediate a bitter environmental dispute over the project.
One of several hundred protesters was injured.
Environmental activists said they would keep protesting until President Ollanta Humala holds a town hall meeting to address their fears that the mine would hurt nearby water supplies.
"This project isn't viable," said the president of the region of Cajamarca, Gregorio Santos, who has led the protests.
Protesters and farmers say the mine would cause pollution and alter sources of irrigation water by replacing a string of alpine lakes with artificial reservoirs.
The central government has called the environmental plan for the project sound. The company said it was exhaustively researched and designed according to strict standards.
The plan was also approved by the previous government but the impasse over the project, which would be the biggest mining investment in Peruvian history and create thousands of jobs, has become a crucial test for Humala.
The leftist former army officer campaigned on promises to defuse persistent social conflicts over natural resources that have delayed billions of dollars in investments in Peru, which is one of the world's top minerals exporters.
Since taking office in July, he has tried to govern as a moderate who can help the rural poor while pleasing business.
But some longtime supporters complain he has moved too far to the right by saying he is in favor of the mine.
Others say the anti-mining sentiment he faces runs deep and cannot easily be mediated in a country where provinces have long felt ignored by the central government.
"Companies come here, take the gold and then go away - just like in colonial times. People feel cheated," said Jorge Rimarachin, a lawmaker from Cajamarca.
Nearly 500 years ago in Cajamarca the Spanish conquistador Francisco Pizarro captured the Incan emperor, Atahualpa, and as a ransom demanded a room full of gold and two rooms of silver.
The Incas handed over the precious metals but Pizarro killed Atahualpa anyway, Peruvian historians say. The room that held the gold is now part of a museum in Cajamarca.
"Everybody in Cajamarca knows the history of Pizarro. It's very present in the minds of the people," Rimarachin said.
To calm disputes over natural resources nationwide, Humala has started to roll out social programs and raised taxes on mining companies to spread the wealth from a decade-long economic boom to the one third of Peruvians mired in poverty.
Though Humala says he wants to steer more of the national budget toward rural provinces, a large chunk of Peru's mining tax revenues are controlled by regional governments that often end up hoarding cash because they lack the administrative capacity to spend it on residents - an institutional weakness that analysts say hurts support for new mines.
The Conga project, which Newmont owns with Peruvian precious metals miner Buenaventura, would produce 580,000 to 680,000 ounces of gold a year and open in 2014. It has gold deposits worth around $15 billion at current prices and sits 13,800 feet high in the Andes.
Nearby is Newmont's existing Yanacocha mine, which produced 1.5 million ounces of gold last year. It had a mercury spill in 2000 that still angers some local residents, though the company now runs extensive community development programs in the area.
Newmont has faced opposition to its expansion plans in the past. In 2004 it halted exploration to expand Yanacocha to include Cerro Quilish, a nearby mountain, because of community protests over water supplies.
Additional reporting by Terry Wade and Marco Aquino; writing by Terry Wade; Editing by Vicki Allen