The UK Atomic Energy Authority yesterday won permission to construct a £100m plant to deal with the most hazardous radioactive waste at Dounreay, but financial shortfalls could delay the work.

The Caithness area committee of Highland Council gave outline permission for the construction of three buildings, covering an area the size of a football pitch, that are key to decommissioning the Dounreay site.

The largest is the intermediate level waste cementation plant and store, designed to immobilise and encapsulate more than 30 years' worth of intermediate level liquid waste from fast reactor reprocessing and provide for its secure storage until a national repository is available.

There are 200 cubic metres of waste and the walls of the proposed plant will have to be 3ft thick, said Colin Punler, UKAEA's communications manager at Dounreay yesterday. He said: "About 80% of the radioactive waste hazard at Dounreay is contained in these liquids which are stored underground at the moment. They arose from the reprocessing of spent nuclear fuel.

"One of the priorities of the decommissioning programme is to get that waste into a solid form that can be stored safely for future generations. The waste is put into cement and then into drums.

"It is one of the most significant elements in the site restoration programme. This waste is the largest single hazard on the site."

Construction is due to begin in 2008 and 120 jobs should be created. It is expected to take four years to build and commission, allowing the waste to be treated by 2017. It is also planned to take parts of reactor components and subject them to cementation.

However, the development comes at a time of uncertainty for Dounreay as the Nuclear Decommissioning Agency (NDA), the body which finances the decommissioning programme, tries to make up a deficit of £200m.

Half the NDA's income comes from its commercial activities, but just before Christmas it announced projected shortfalls largely because of the giant Thorp international reprocessing plant at Sellafield in Cumbria. It was supposed to contribute £560m towards the NDA's annual budget of £2.2bn, but it has been shut since May 2005 following a major leak of uranium and plutonium fuel.

There has also been a drop in projected income from Magnox nuclear power stations while faults have led to major repairs at British Nuclear Group sites at Hunterston and Hinkley Point.

The NDA has written to operators of the 20 sites being decommissioned urging them to identify savings in the coming financial year.

It is believed that Dounreay's grant for 2007/08 could be cut back by £57m, around a quarter of this year's budget of £277m, and may mean the shedding of up to 500 jobs.