"The Finance Ministry has decided to exclude the company Rio Tinto from the Government Pension Fund - Global (oil fund) due to a risk of contributing to severe environmental damage," it said in a statement.

"There are no indications to the effect that the company's practices will be changed in future, or that measures will be taken to significantly reduce damage to nature and the environment."

At the end of last year, the oil fund held about Nkr4.42 billion ($788 million) worth of Rio Tinto Plc shares and Nkr430 million worth of shares in Rio Tinto Ltd.

Finance Minister Kristin Halvorsen said: "Exclusion of a company from the fund reflects our unwillingness to run an unacceptable risk of contributing to grossly unethical conduct.

"The Council on Ethics has concluded that Rio Tinto is directly involved, through its participation in the Grasberg mine in Indonesia, in the severe environmental damage caused by that mining operation. The fund cannot hold ownership interests in such a company."

Rio Tinto Group, an international mining group, is a joint venture partner with Freeport McMoRan in the Grasberg mine. Freeport was excluded from the oil fund in 2006 at the recommendation of the Council on Ethics, because continued investment in the company was deemed to entail an unacceptable risk of contributing to severe environmental damage.

Rio Tinto spokesman Nick Cobban said: "Our immediate response is one of surprise and disappointment.

"We have an exemplary record in environmental matters, world leading in fact, and they are given the very highest priority in everything we do."

The oil fund invests under ethical guidelines set by the government and has in the past excluded companies that produce nuclear arms or cluster munitions and groups deemed to have caused environmental damage or abused human or worker rights.

Published: 09 September 2008 10:08 GMT  | Last updated: 09 September 2008 11:04 GMT