Lynas announced on Monday a 10-year renewal of its licence to operate in the Southeast Asian nation, but under tighter conditions set by the Malaysian government.
The Australian company's plant, situated at Gebeng in eastern Malaysia, is the largest commercial producer of separated rare earths outside of China.
It is a major producer of materials used in everything from electric cars and mobile phones to missiles -- and has been operational since 2012.
Lynas has previously faced controversy over elevated radiation levels in byproducts linked to its raw material processing methods, raising doubts about whether its licence would be renewed.
Under the latest agreement, the Malaysian government said on Monday, the company must now halt all activities that produce radioactive waste within five years of its renewed operating licence.
"This ensures there will be no continuous accumulation of radioactive waste in Malaysia," Science, Technology and Innovation Minister Chang Lih Kang said.
Existing radioactive waste will be stored in a permanent disposal facility, which is still being built and is set to be finished by the end of the year.
But Greenpeace Malaysia said the government's measures failed to address the core problem: large volumes of radioactive waste already stockpiled in the country which will continue to be stored domestically.
"Granting a long-term licence extension before fully resolving legacy waste management concerns risks normalising regulatory leniency in matters involving radioactive materials," it said.
"Malaysia's participation in the global rare earth supply chain must not come at the expense of environmental governance integrity," Greenpeace said.
The group also called for independent scientific checks, open real-time updates, and clear rules with specific targets to ensure compliance.
An analyst said the extension granted to Lynas will ensure a steady supply of rare earth materials -- and boost investor confidence in Malaysia.
Qarrem Kassim, based at Malaysia's Institute of Strategic and International Studies, told AFP with the extension of the new licence, the Malaysian government substantially tightened the conditions around Lynas' radioactive byproduct.
But the agreement over radioactive waste production and storage for the next five years remained a compromise, Kassim added.
"It is a compromise, whether good or not, we shall see," he said.
llk-jhe/mtp
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