Egypt will demand that Ethiopia stop construction of a Nile river dam and warned "all options are open" if it harms its water supply, advisers to President Mohamed Morsi said on Wednesday.

"It is Egypt's right to defend its interests," said Ayman Ali, one of Morsi's advisers, in comments carried by the official MENA news agency.

"Other people have a right to seek their own interests. But there must be guarantees that the Ethiopian dam will not harm Egypt, otherwise all options are open," he added.

Presidential adviser Pakinam El Sharkawy said Egypt would demand that the upstream country end its construction of the dam.

The presidency has said the dam is a "national security" issue for Egypt.

"Demanding of Ethiopia to stop construction of the dam it intends to build on the Blue Nile will be our first step," MENA quoted her as saying.

Egypt believes more studies are needed on the dam's impact on its water supply which is almost entirely dependent on the Nile, although far more on the flow down the White Nile from the Great Lakes of East Africa, than that down the Blue Nile from the Ethiopian highlands.

Ethiopia has begun diverting the Blue Nile 500 metres (yards) from its natural course to construct a $4.2 billion (3.2 billion euro) hydroelectric project known as Grand Renaissance Dam.

The Blue Nile joins the White Nile in Khartoum to form the Nile which flows through Sudan and Egypt before emptying into the Mediterranean.

The first phase of construction is due to be finished in three years, with a capacity of 700 megawatts. Once fully complete, the dam will have a capacity of 6,000 megawatts.

Egypt believes its "historic rights" to the Nile are guaranteed by two treaties from 1929 and 1959 which allow it 87 percent of the Nile's flow and give it veto power over upstream projects.

But a new deal was signed in 2010 by other Nile Basin countries, including Ethiopia, allowing them to work on river projects without Cairo's prior agreement.

The United States is urging Cairo and Addis Ababa to work to resolve the issue, saying it has "seen good cooperation" over the past year "to jointly examine the impacts of the Grand Ethiopian Renaissance Dam."

"We encourage both countries to continue working together constructively to minimize the downstream impacts of (the dam) and develop the Blue Nile for the benefit of all the people in the region," a State Department statement said.