A Malaysian high court put on hold until Oct 4 a temporary operating licence granted to Lynas Corp's controversial rare earth plant near the eastern city of Kuantan, prompting an 8 per cent fall in the Australian firm's shares on Tuesday.

The rare earth plant - the world's biggest outside China - has been ready to fire up since early May, but the company has been embroiled in lengthy environmental and safety disputes with local residents since construction began two years ago.

The plant is considered important to breaking China's grip on the processing of rare earths, which are used in products ranging from smartphones to hybrid cars.

Lynas confirmed the Kuantan High Court's decision on Tuesday, but said it would not affect production at the plant and that it plans to strongly assert its rights at the next court hearing.