Panamanian indigenous protesters and farmers blocked the Pan-American Highway for several hours on Monday to demand the government abandon a European-funded hydroelectric dam they say will swallow their land and damage the environment.

Some 200 protesters shut down traffic at the entrance to the German- and Dutch-funded Barro Blanco dam project, witnesses said.

After blocking the road for several hours, protesters allowed traffic through but threatened further action.

"If (President Juan Carlos) Varela does not come here tomorrow to say the project is canceled, we will immediately and indefinitely close the road," protest leader Ricardo Miranda told AFP.

The protest comes after the breakdown of UN-backed talks to resolve the standoff between the protesters, the government and the Panamanian companies behind the 28-megawatt project, Generadora del Istmo and Hidraulica de San Jose.

The Ngabe-Bugle people in the western Panamanian region of Chiriqui say the dam will flood vital farmland and damage the Tabasara River.

After months of protests, the government put the dam on hold in February for failure to complete environmental impact studies.

But canceling it could expose the government to legal action by the companies, which say they would lose more than $130 million.