The Antara news agency quoted Yudhoyono as saying the company should pay 20% of the damages to more than 10,000 families within 10 weeks of July 1.

He added that Lapindo had promised to make the compensation payments, amounting to 100 billion rupiah ($US11 million), through an escrow account each week.

The remaining 80% should be paid a month before Lapindo’s two-year lease on their rented houses expired, he said.

He rejected suggestions that the Government lend money to Lapindo to compensate the victims.

“There has indeed been an idea of the Government to lend money, but would not be necessary, because PT Lapindo Brantas is able to make the payments,” Yudhoyono said.

Massive tracts of agricultural land and heavily populated villages have been submerged in hot mud since it began to flow out of the Banjar Panji-1 exploration well in Sidoarjo last May following an oil drilling accident.

The mud has continued to spew out at a rate of 100,000 cubic metres a day, despite government efforts to plug the leak.

The well, operated by Indonesian company Lapindo Brantas, is part owned by Australian company Santos, which holds an 18% stake.