* Police establish security at firm taken over by govt
* Damaged toxic sludge reservoir holding, under scrutiny
(Updates with police securing spill firm&${esc.hash}39;s property, quotes)
By Gergely Szakacs
BUDAPEST, Oct 12 (Reuters) - Hungarian police secured all premises of aluminium firm MAL Zrt on Tuesday after a disastrous toxic sludge spill that prompted a government takeover, as crews raced to complete an emergency dam to prevent a second deluge.
Prime Minister Viktor Orban has blamed "human negligence" for the escape of sludge from a giant reservoir at a MAL Zrt-owned alumina plant that killed eight people last week, and said the government would take control of the firm.
"Security responsibilities have been taken over by police at all Hungarian premises of MAL Zrt. And we have also gained control of (the company&${esc.hash}39;s) information technology system," disaster commissioner Gyorgy Bakondi told a news conference.
He said police also searched the firm&${esc.hash}39;s Budapest office and tax authority APEH has ordered a full screening of MAL Zrt.
Bakondi said he would meet MAL Zrt board members later on Tuesday to discuss next steps. The government will decide on Wednesday whether it is safe to restart production at the plant, he said. If so, the plant could resume output by the weekend.
He said officials were also investigating whether there had been more sludge in the burst reservoir than the legal limit.
Authorities were also checking similar plants elsewhere in Hungary, but so far had not found any irregularities that would warrant immediate action.
Orban said on Monday a state commissioner would be appointed to take control of MAL and manage its assets. Parliament then approved a bill allowing the state to take over MAL Zrt.
SLUDGE DELUGE
A million cubic metres of lethal red mud surged out of the reservoir on Oct. 4, flooding three villages and farmland and fouling rivers including a tributary of the Danube, which flows through or skirts a dozen European countries.
More than 120 people were injured by the spread of the corrosive, caustic sludge.
Crews in the village of Kolontar had nearly completed a 600-metre-long emergency dam crossing the village to protect the area from a second waste overflow.
Kolontar was evacuated on Saturday after cracks appeared in the northern wall of the burst reservoir. Authorities say 500,000 cubic metres of caustic sludge could escape the reservoir if the wall were to fail.
Government spokeswoman Anna Nagy said the state had not nationalised MAL Zrt, telling a news conference that the firm has been taken over temporarily "as an extraordinary measure ... is an extraordinary situation".
She said it was important to revive the plant because this involved the jobs of 4,000-6,000 people directly and many more indirectly. MAL Zrt warned on Sunday that it could go out of business in days if it were not allowed to resume production.
The government has put Bakondi, head of the National Disaster Unit, in charge of MAL with the task of creating transparency in its finances and drawing up a plan on how the plant, a key employer in the region, can function safely.
"The disaster commissioner will have a team charged with safely restarting the company, preventing the siphoning off of assets and making sufficient funds available for damage compensation," Orban spokesman Peter Szijjarto told public television m1.
European Commission President Jose Manuel Barroso told a conference at Pecs University in Hungary on Tuesday the sludge spill was a "very serious matter," and said he would discuss it at a working meeting with Orban. (Additional reporting by Marton Dunai; editing by Mark Heinrich)
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