The Australian company said that the Kuantan High Court's decision leaves the temporary operating license suspended until October 10, extending a one-week halt that expired on Thursday.

The rare earth plant - the biggest outside China - has been ready to fire up since early May, but the company has been embroiled in 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.

Activists linked to the environmental group Save Malaysia Stop Lynas, who had asked for the postponement, want the court to suspend the temporary license until two judicial review cases challenging the government's decision allowing the plant to operate are heard.

Shares in the firm fell 3.5 percent from the previous close to $0.825 at 0639 GMT, down 8 percent from where they stood before the court decision.

"We're staying optimistic," Tan Bun Teet, a spokesman for the group, told Reuters after the court decision.

"The court has set an early hearing for October 10 and it looks like they want to resolve it quickly," he added.

The group's previous attempts to stop the plant had failed.

Lynas received a temporary operating license for the long-delayed $800 million rare earth plant early in September, enabling it to start production as early as October.

Protests over possible radioactive residue have drawn thousands of people and the project has become a hot topic ahead of an election that must be held by early next year.

(Reporting By Siva Sithraputhran; Additional reporting by Maggie Lu in Sydney; Editing by Michael Urquhart)

• A Permanent Economic Emergency