About 1,700 local workers employed by mining giant Rio Tinto (ASX: RIO) will lose their jobs at the Oyu Tolgoi copper mine in Mongolia. Rio blamed the lay-offs to the stop in the $5 billion expansion plan ordered by the Mongolian government.

The planned expansion has been in the planning stage for years but was placed on hold in July when the Mongolian government insisted on parliamentary approval for financing of the mine expansion venture. However, the legislative body is on recess.

"This is a difficult time for everyone at Oyu Tolgoi, but it is especially difficult for those who work on the underground mine," The Straits Times quoted a Rio spokesman.

Rio had actually announced the delay a month ago as the Mongolian government placed more pressure on the world's second-largest miner to maximise returns from the project. The miner estimates about 80 per cent of the minerals are underground in the southern Gobi desert.

"We would rather pause and get these things right" instead of rushing to the project's next phase of development, Rio Chief Executive Sam Walsh said, pointing to the centre of the dispute on scale of investments needed, number of locals employed on the project and the Mongolian government's involvement in the decision-making process.

Despite the lay-offs, Rio said, "While this is an upsetting time for everybody working at Oyu Tolgoi, we would like to emphasise that we are still an operating business, exporting concentrate to our international customers and infrastructure projects outside of the underground mine such as the road construction to Tsagaankhad will continue."

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