The Baikal Pulp and Paper Mill will "almost certainly" be closed in the near future, Deputy Prime Minister Arkady Dvorkovich said.
"There been a lot of discussion, there is a group that is analyzing various courses of action...most likely the plant on Baikal will close, almost certainly," Dvorkovich was quoted as saying Friday.
For decades, environmentalists have campaigned for the closure of the controversial factory, which they say releases dangerous pollutants into the pristine waters of Lake Baikal.
It was briefly closed in 2008 after the federal environmental watchdog ordered it to cease releasing effluent into the lake, a process essential to the production of high-value bleached cellulose, which makes the plant profitable.
Then-prime Minister Vladimir Putin allowed the plant to recommence production in early 2010.
Plant employees were reportedly informed in June that the mill would finally close when its license to release effluent into Lake Baikal expired on August 15.
But regulators last month unexpectedly extended the mill's license for another year while other options are considered.
The plant is the main employer in the town of Baikalsk, and authorities are said to be wary of the economic impact of closure.
Putin has also said that national security reasons prevent the plant from being closed because the high-grade cellulose it produces is essential to the production of strategic nuclear missiles, including the Topol-M and Bulava.
The factory is 1.9 billion rubles ($59 million) in debt and operating under external administration.