A fresh row broke out last night over the £11m contract to dismantle rusting US warships in a North-East yard.

Green campaigners said the company hoping to recycle the so-called ghost ships could not dispose of poly-chlorinated biphenyls at its site in Seaton Meadows in Hartlepool.

Friends of the Earth said Able UK would have to apply for a licence along with five other new permissions if it is to carry out the dismantling work after legal challenges have been resolved.

On Monday, a High Court judge ruled a licence modification to allow the work was "legally flawed".

The Environment Agency confirmed last night that the company could not bury PCBs in a landfill site.

It did so after taking legal advice in response to a letter from Friends of the Earth's lawyer last week.

An Environment Agency spokesman said: "The Seaton Meadows site is not licensed for PCBs except for household waste and Able are aware of that. As far as we are concerned, that is one of the conditions of the licence."

However, Able UK hit back.

Managing director Peter Stephenson said: "Able UK's current waste management licence for Seaton Meadows does allow disposal of solid PCBs in any concentration at the landfill site provided the site's waste acceptance criteria is met and disposal would not result in any environmental impact from the site.

"It should also be pointed out that landfill disposal of these kinds of materials has been regarded as standard practice for many years.Obviously now the issue has been raised, we will have to examine the information which has just been provided to us by the agency in order to consider the best way forward."

It is normally illegal for the US to export such chemicals, but an exception was made for the former US Navy ships by the US Environmental Protection Agency. One of the reasons for the exception was the availability of a safe disposal area for PCBs.

Friends of the Earth campaign director Mike Childs said: "The revelation that Able UK is not allowed to dispose of PCBs in their Seaton Meadows landfill is nothing short of astonishing.

"A public inquiry is clearly now needed to uncover the truth about who knew what as this deal went ahead and who is responsible for this sorry mess."

A spokesman for the US Marine Administration (Marad) said: "We acted based on valid permits that we had been told were in place. We had every assurance that the company were able to carry this out."

For more information on the ghost ships, log on to The Northern Echo at www.ghost ships.co.u