Hungary has declared a state of emergency in three counties hit by a toxic mud spill which left three people dead and 120 injured, the interior ministry said.

The state of emergency was called in the Veszprem, Gyor-Moson-Sopron and Vas counties in the west of the country after a reservoir of residue from an aluminium plant broke, releasing a flood of toxic red mud that swamped the villages of Devecser and Kolontar and threatened five others, the ministry said.

One of the dead was a three-year-old child and the number of injured rose to 120, eight of whom were in a serious condition, said the mayor of Kolontar, Karoly Tily.

State secretary for the environment ministry Zoltan Illes, who visited Kolontar Tuesday, described the incident as the worst-ever chemical accident in Hungary.

"It's an ecological catastrophe," he said.

The red mud is a toxic residue left over from aluminium production and contains harmful substances such as lead as well as highly corrosive elements. The production of a tonne of aluminium generates nearly three tonnes of the sludge