ArcelorMittal has teamed up with Italy's Marcegaglia to bid for Ilva, a loss-making Italian steel plant at the centre of a major environmental scandal, the target company confirmed Wednesday.

The Ilva site at Taranto in the Puglia region of southern Italy employs 16,000 workers and has the biggest output capacity of any plant in Europe.

It is currently operating at roughly half of its peak production level of 11 million tonnes per year because of weak demand and chronic overcapacity in Europe.

The plant has been under special government administration since last year after its owners, the Riva family, were accused of failing to prevent toxic emissions including carcinogenic particles from spewing out across the town, contaminating local farm land and mussel beds off the coast.

A report published by the European Environment Agency on Tuesday named Ilva as one of the 30 worst industrial plants for pollution in Europe.

The European Commission last month gave Italy two months to outline how it intends to clean up the plant, which supplies steel products to the car and engineering industries and is vital to the blighted economy of southern Italy.

Ilva confirmed on Tuesday that it had received a bid but refused to divulge details.

Sources said the offer from Luxemburg-based ArcelorMittal and Marcegaglia was a non-binding one and subject to a series of conditions, including a 30-day deadline for acceptance.

The time-limited move by Arcelor boss Lakshmi Mittal ups the pressure on other potential bidders, said to include another Italian group, Arvedi, to come forward.

- JSW loses out? -

Italian media have made ArcelorMittal the favourite to win any bidding war.

Indian steelmaker JSW also expressed initial interest in Ilva but, according to reports in India, the company has been put off by the potentially high environmental and pension liabilities associated with the plant.

The cost of making Ilva compliant with the European Union's Industrial Emissions Directive has been estimated at 1.8 billion euros and who picks up that bill will be central to the takeover negotiations.

Several members of the Riva family and other Ilva managers were convicted between 2001 and 2007 on pollution-related charges but many of these were subsequently quashed on appeal under statute of limitations rules.

Prosecutors in the various cases cited a local lung cancer rate running at 30 percent above the Italian average and blamed the plant for 400 premature deaths in the 1990s and first decade of this century.

Italian Prime Minister Matteo Renzi is desperate to secure some kind of future for Ilva against a gloomy economic backdrop of a contracting economy and stubbornly high unemployment -- both of which are frustrating his attempts to put the nation's finances in order. He has said he wants a solution by Christmas.

The problem of what to do about Ilva is the most acute element of a broader crisis in what is the second largest steel industry in Europe, after Germany's.

Italy's second biggest company in the sector, Lucchini, is also under special government administration pending a resolution of its future, which might come soon.

JSW was among potential bidders looking at acquiring part of Lucchini's Piombino plant in Tuscany.

The Indian company appeared Wednesday to have lost out to Algeria's Cevital, after a committee established by the administrator recommended its bid.

No deal has been signed however and labour unions were seeking clarification of the terms of the deal from the ministry for economic development.

A third Italian steel group, Acciai Speciali Terni (AST), is in the throes of a battle between management and unions over German owner ThyssenKrupp's desire to cut 550 jobs as part of a restructuring it says is vital to secure the plant's future.

Pope Francis is among those who has weighed into the row with the pontiff having publicly backed the AST unions' case against job cuts in September.