It is believed the government is in a difficult position: it approved the building plan last year and has no legal grounds to reverse its consent. Some units of the building have been sold on pre-completion contracts.

Heritage activist Tony Yuen Wai-tong, who is leading a campaign to save the lighthouse from being obscured from view, said the new building had cast doubts on the effectiveness of the government's height limits.

'It's very disappointing to see the limit breached,' Mr Yuen said, 'The mind boggles that the building's construction went ahead after the government asked for it to stop.'

Local developer San Va Construction planned the building, beside Hotel Royal and halfway up Guia Hill, at 126 metres but agreed to scale it down after talks with the government.

The height they agreed upon was not revealed.

Unesco conferred the World Heritage status on Macau's historic centre, which includes the lighthouse, in 2005. Standing atop the 91-metre Guia Hill, the lighthouse was the first modern one on the Chinese coast.

Macau in September 2006 relaxed a long-standing restriction on the maximum height of buildings near Guia Hill, opening the way for developers to plan buildings as high as 135 metres at the foot of the hill.

The central government's liaison office had originally planned a 99.9-metre tower near Guia Hill to mark the 1999 handover. But it scaled that back to 90 metres earlier this year in response to the conservation drive.

After Mr Ho announced the height limits last month, the government said it had ordered San Va Construction to stop work.

Public works minister Lau Si-io said on Wednesday the project was still ongoing because of hygiene and safety concerns. 'As far as I know, one of the floors is half completed, with building materials unused. If it stays unfinished, mosquitoes may breed,' Mr Lau said. 'Due to safety concerns, the work will continue until [the floor] is finished.'

Unesco's World Heritage Centre has been seeking 'clarification' from Beijing and Macau about threats facing the lighthouse. Cultural authorities in Beijing have urged Macau to address the problem and ease public concerns.

Rumours of a standoff between Unesco and Macau officials had been spreading for days before the government finally denied it on Wednesday.

Portuguese-language newspaper O Clarim reported last Friday that Unesco was unhappy with threats facing the Guia Lighthouse and St Paul's Ruins and forced the enclave to put off heritage promotions overseas. The report said Macau was forced to quit a cultural expo in Paris and that Unesco was considering taking some Macau sites off the World Heritage List.

Chinese-language newspaper Cheng Pou picked up the story and the issue generated heated debates on the internet - before talks of China's earthquake overwhelmed Macau's cyberspace.

A Unesco official denied there was a standoff, describing the report as 'strange'.

The government's tourism office said on Wednesday it had given up the idea of holding an expo at Unesco's headquarters due to 'lengthy procedures to get permission'.