NEW DELHI, Oct 26 (Reuters) - India's Supreme Court is close to a final decision on a controversial plan by Britain's Vedanta Resources Plc <VED.L> to mine bauxite in sacred and forested hills in the remote east of the country.

Another hearing of the long-running case is due on Friday, and while a final verdict is unlikely, the court could decide it has heard enough to make up its mind, lawyers involved in the case said.

Vedanta wants to dig open-cast mines in the Niyamgiri hills in Orissa state to feed an alumina refinery it has already built in the area, as part of a $800 million project expected to initially produce 1 million tonnes of alumina per year.

But thousands of tribal people say the mine will destroy hills they consider sacred, force them from their homes and destroy their livelihoods, which are based on farming millet, hunting and collecting fruits and spices from the forests.

Environmentalists say the open-cast mine would also wreck the rich biodiversity of the hills and disrupt key water sources that supply springs and streams in the area and feed two rivers that irrigate large areas of farmland.

But the Indian government backs the plan, as part of efforts to industrialise and exploit the mineral resources of the underdeveloped east of the country.

The environment ministry told the Supreme Court earlier this month that the mining would only affect a marginal amount of forest land and that it would have "negligible" impact on flora.

Earlier, a Supreme Court committee said that the government had violated its own guidelines by allowing the firm to build the refinery without getting clearance to mine the hills.

But the ministry said "special efforts" would be made to manage and conserve wildlife in the area, which is part of an elephant corridor, shelters leopards and is the only known home in Orissa of the rare golden gecko.

The government said other industrial projects in the area had contributed positively to the life of tribal people -- providing direct and indirect employment, service and support opportunities.

But activists say the largely illiterate tribal people would not be able to make use of cash given as compensation.

"If this mining permission is granted, the primitive group will completely vanish," said Bratindi Jena of ActionAid. "They cannot go and live in some other place and cope with another way of life."

Tribespeople also say that some villagers have been beaten, briefly imprisoned or threatened with jail by government officials, and tricked into signing land transfer documents.

Vedanta says none of the allegations have been substantiated.

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