A mud volcano that forced more than 15,000 people to abandon their homes on the Indonesian island of Java in 2006 has breached the barriers built to contain it, causing further damage, police said.

Residents in Porong in East Java province fled from their homes in panic late on Thursday when hot, foul-smelling mud began to flow into the area, covering the nearby railway tracks and a main road.

"At least 10 vehicles were buried by one-metre (yard) deep mud, including mine," said Andi Yudianto, a local traffic police chief.

The newly affected area is about 20 km (12 miles) from Surabaya, Indonesia's second-largest city. But thousands of homes and factories in an area four times the size of Monaco have been submerged by the hot mud since it first started to erupt in May 2006.

The disaster occurred about 200 metres from a gas exploration well operated by PT Lapindo Brantas, just two days after an earthquake hit the city of Yogyakarta in Central Java.

There has been a dispute over whether the mud volcano was caused by the gas drilling well or by the earthquake.

Lapindo is partly owned, through various other companies, by the family of Aburizal Bakrie, a cabinet minister and businessman. The Bakrie family last year topped the Forbes' list for the wealthy in Indonesia.

The government has tried several schemes to halt the flow, including dropping giant concrete balls into the crater, but the hot mud continues to spurt out.

Ahmad Zulkarnain, a spokesman for a government body managing the mudflow, said it had been unable to reinforce the 10-metre thick and 5-metre high dyke built to contain the mudflow because there had been no agreement on compensation with the owner of the land where the defences are situated.

"We had been worrying about this for some time. It is vulnerable, especially during the rainy season," he told Reuters.

The government ordered energy group Lapindo, which many people blame for the disaster, to pay 3.8 trillion rupiah ($403.6 million) in compensation to the victims and to cover the damage. Thousands of victims have staged frequent street protests, complaining of inadequate compensation.

Lapindo and PT Energi Mega Persada Tbk ENRG.JK, which has a stake in Lapindo, dispute the idea the disaster was caused by the drilling and also whether Lapindo alone should shoulder the cost.

($1=9,415 rupiah) (Writing by Ahmad Pathoni; Editing by Sara Webb and Jerry Norton)