The Marino Residents Action Group which represents those living above the route of the Dublin Port Tunnel has defended compensation claims of up to £1 million (1.27m) per house.

The claims, if successful, could add another £300 million (381m) to the cost of the Port Tunnel, already running at about £353 million (448m). In the longer term, an additional 700 households in the area are being advised by the action group on the prospects of claiming compensation, should the Eastern by-pass link up with the port tunnel, as has been suggested.

This "nightmare situation" for the State, which is looking at a gestation period of about 16 years for the port tunnel, has been defended by Mr Fintan Cassidy, spokesman for the action group.

Mr Cassidy said his group was advising residents of 300 homes directly along the port tunnel route to refuse initial offers of compensation from Dublin Corporation.

The Irish Times understands that compensation claims are being considered under three headings: loss of land underground, disruption and loss of the entire property. In exercising its right to acquire the underground route for the port tunnel, the corporation is prepared to consider compensating home-owners under each heading. That is, the residents can accept compensation and remain in their homes, or be fully bought out by the corporation. Either way they are likely to receive compensation for disturbance.

The current market value of the largely three-bed terraced houses in the Marino route area is in the region of £200,000to £250,000 (253,950-317,430). However, according to Mr Cassidy, the residents are justified in their demands of up to £1 million (1.27m) per property.

Mr Cassidy said the figure took into account the value of the houses at a future date, when they might be handed over by residents to their children.

He rejected suggestions by the corporation that the group was being unrealistic.

"We are fully entitled to reparation for the loss of lands, disturbance during construction, disturbance during operation of the tunnel, and most of all, compensation for the devaluation of our properties. After all, who is going to buy a house with a four-lane motorway running underneath it?:"

Mr Cassidy insisted that the corporation "deliberately" chose to run the tunnel under the high density residential area, even though other routes had been identified. These included routes under open lands and a route under the Liffey.

"At the time of the route selection in 1994, a cost benefit analysis study was carried out with the adopted route - Santry to Fairview - only narrowly edging out the east/west axis. At that time the cost of the project was £104 million, but it has since swollen to more than £350m.

Despite the delays, Mr Cassidy insists that the corporation has not given a satisfactory explanation of the jump in costs and he said a new cost benefit analysis should, even now, be carried out on the project.

The Marino Residents Action Group is now calling on Dublin Corporation to publish its costings for the tunnel, giving details of its budget for compensation, while at the same time re-evaluating the entire project in the light of current estimates - "taking into account fair and equitable compensation for residents".

Meanwhile, Dublin Corporation has been in contact with some of the residents and it is understood that offers of compensation on a more modest scale have been made. A spokesman said it would be hard to accept a case for compensation based on higher values than market values and he said the level of compensation would be based on what was "fair and reasonable".

However, the dispute over the ultimate cost of the tunnel will, at the least, not delay the construction work - which may proceed even in the absence of an agreement between the corporation and the local residents.

The contract for the design and construction of the Dublin Port Tunnel has been awarded earlier this year to a consortium which included firms from the Republic, Japan and the UK.

The Consortium, Nishimatsu Mowlem Irishenco (NMI), is to begin work early next year and the tunnel is expected to take more than three and a half years to build. It will run from the M1 at Santry to link with Dublin Port. The 5.6 km project will be constructed as a dual carriageway motorway, with 4.5 km in-tunnel.

While inflation in the construction industry is running at 12.5 per cent, additional measures to meet concerns of residents and work which had not been catered for in the earlier estimate are also blamed for the inflationary nature of the price.

Mr Hugh Creegan, deputy project engineer at Dublin Port Tunnel, has confirmed that an Austrian company, Geoconsult, would not be involved in the contract to design or build the tunnel. Geoconsult was the consultant to Dublin Corporation on the project and was opposed by local residents because a tunnel it constructed at Heathrow Airport collapsed in 1994.

The Corporation said it would install a client's representative to supervise and monitor the design and construction of the project.

The Port Tunnel will comprise two tunnels for two traffic flows. Mr Creegan said a spray-on concrete system - whereby concrete would be sprayed on to the inside of the tunnel rather that erecting pre-cast concrete - would only be used for passageways linking the tunnels. This type of support was used by Geoconsult in the Heathrow tunnel which collapsed in 1994. Residents have also expressed concern about the use of this method for the Port Tunnel.