Experts quoted in the report have raised concern about hazardous radioactive waste that the operations will produce.
The RM700 million refinery is being constructed by Australia's Lynas Corp, which will ship rare earth ore mined from Western Australia's Mount Weld.
This is Malaysia's second foray into rare earth refining, following the much-disputed operations in Bukit Merah, Perak, in the 1980s.
The NYT quoted Malaysian Atomic Energy Licensing Board director Raja Abdul Aziz Raja Adnan as saying that approval was granted for the Lynas project after a thorough review by various government agencies.
He said the imported ore and waste products would have low-enough radiation levels to be manageable and safe.
“We have learned we shouldn't give anybody a free hand,” Raja Adnan said, referring to Bukit Merah.
However, Dr Jayabalan A Thambyappa, a physician and toxicologist who has treated patients in Bukit Merah, is not convinced.
“The word 'low' here is just a matter of perception - it's a carcinogen,” he told the NYT.
Yet the Malaysian government is eager for the Lynas plant to be constructed and has offered a 12-year tax holiday.
“If rare earth prices stay at current lofty levels, the refinery will generate RM5 billion a year in exports starting late next year, equal to nearly 1 percent of the entire Malaysian economy,” said the NYT.
The refinery will have two dozen inter-connected buildings over a 20 ha area. It will include the latest technology in pollution control and radiation detection.
There will be a storage pool lined with dense plastic over impermeable clay to hold radioactive by-products until transported elsewhere.
How the waste will be disposed of permanently remains unanswered. Lynas was quoted as saying that it intends to turn the waste into concrete-like objects known as tetrapods, to be used for artificial reefs and sea walls to contain erosion.
The report noted that most countries are extremely wary about the environmental impact of refining rare earth, and this has left China as the world's biggest producer with a virtual monopoly.
'Secret clean-up underway'
In the 1980s, Japan's Mitsubishi Corp had set up Bukit Merah Asian Rare Earth company.
However, the refinery was blamed for the unusually high number of birth defects among those in the vicinity.
The Bukit Merah plant ceased operations in 1992 after sustained protests from locals and environmentalists.
The NYT reported that Misubishi, conscious of its image, is currently engaged in a secret clean-up job which will reportedly cost RM300 million.
It also claimed that radioactive waste from Bukit Merah is being stored in the core of a hill in a nearby forest reserve, and that it is entombed in more than 6m of clay and granite.