The Monash Centre for Nanofabrication, to be built in partnership with state and federal governments, the CSIRO and other universities, will look at developing products such as bio-compatible materials for "smarter medical implants'', cheap solar cells and new water-recycling technologies.

Nanotechnology relies on engineering substances at a molecular level, but critics say the experimentation can lead to unforseen health risks.

Last week a scientific study published in Nature Nanotechnology found that carbon nanotubes injected into mice's stomachs caused asbestos-like symptoms.

The study results led to nanotechnology being labelled a health risk for researchers and manufacturers.

Robert Sparrow, of Monash University's Centre for Human Bioethics, said the results should give nanotechnology proponents some pause.

Carbon nanotubing, a common application of nanotechnology, was an altered form of carbon and could have "toxic'' properties.

"I think they should be treated as potentially toxic until there is evidence to the contrary.''

Dr Sparrow said the study was not the first warning sign for nanotechnology.

"What they've shown is in an animal model. But it suggests we need to do a lot more research.''

He called for "very demanding'' safety testing to look at man-made nano-products' individual constituents.

Friends of the Earth has been on a three-year campaign calling for a moratorium on nanotechnology.

Spokeswoman Georgia Miller said last week's study was a "red light'' for an "effectively unregulated'' industry.

A spokesman for the State Government, which is providing $15 million funding for the MCN, didn't comment on last week's study.

He provided a weblink to the Government's 2008 Nanotechnology Statement, which acknowledges the need for regulation to protect people from "any potential dangers''.

MCN director Abid Khan didn't respond to the Journal's calls before deadline.