A bid to build the Ilisu Dam on the River Tigris by the British company Balfour Beatty may get about pounds 200m in support from the Department of Trade and Industry (DTI).
This, say opponents of the project, will be in contravention of the Foreign Office's ethical policy, and of Robin Cook's recently announced aims for the environment.
Balfour Beatty was the lead contractor for another controversial dam, the Pergau in Malaysia. The planned Ilisu reservoir will flood 52 villages and 15 towns in the heart of Kurdistan, including Hasankeyf, a site of international archaeological interest.
The project, which is expected to cost more than pounds 1bn, does not have the backing of the World Bank. The bank says the proposal breaches the United Nations convention aimed at preventing border disputes between states sharing water resources. By building the Ilisu, Turkey could stop the waters of the Tigris from flowing into neighbouring Syria and Iraq.
An international consortium of construction companies , including Balfour Beatty, has submitted applications for export credit guarantees to governmental bodies in nine countries, including Britain's Export Credit Guarantee Department, which is part of the DTI.
An ECGD statement said: "We have been working together with a number of export credit agencies for some time in assessing this project. We still have an open mind and have not made a final commitment."
While launching his "green" foreign policy recently, the Foreign Secretary said: "The prospects for peace in the Middle East would be enhanced if the region's fresh water were properly conserved."
The Foreign Office said it was aware of the project and the application to the ECGD but will not be intervening.