Local people had protested that the firm was polluting the bay causing a health risk, and five company employees have been detained by police.

A Newmont lawyer said the company would now request the release of the five employees.

Newmont has consistently denied polluting the bay, in North Sulawesi.

A government fact-finding team concluded that the local Newmont firm, Minahasa Raya, had not polluted the water in Buyat Bay with excess mercury.

It said that "all the parameters of water quality are well within standard".

Results of the study were in line with another investigation conducted by the WHO and Japan's Institute for Minamata Disease, which found mercury levels in the bay were not unusual.

Local residents claimed that waste from the Minahasa Raya mine was causing illnesses, including the neurological disorder Minamata disease.

Newmont strenuously denied the allegations, saying it had followed all regulations and kept the Indonesian government informed of its activities.

But five employees, including an Australian and a American, have been in police custody since September.

Newmont lawyer Luthfi Yazid told Reuters news agency that the study's verdict "strengthens our stance that our client did not damage nor pollute the environment" around Buyat Bay.

"We will use it as a legal reason to apply for the release from detention of our clients," he added.