A venomous battle for control of Russia's largest film studio, Mosfilm, has broken out, with the Minister of Culture accusing the studio's director of converting part of the historic premises into a plastic bottling factory.

The studio director last week dismissed the allegation as a scandalous libel, retorting that the Culture Ministry's plans to privatise the state-owned studio would lead 'to the destruction of Russian cinema' and prove 'catastrophic for the country's cultural heritage'.

This explosion of hostilities between two of the most powerful men in Russian cinema comes days before Vladimir Putin is due to sign a presidential decree overturning a long-standing ban on privatising film studios.

Radical reorganisation of the industry is expected as a result, and Mosfilm is already the scene of the most dramatic power struggle.

Sprawled over a large patch of prime real estate in central Moscow, Mosfilm played a central role in the development of Russian film over the twentieth century. Soon after its creation in 1924 the studio became powerful enough to attract Russia's leading directors. Sergei Eisenstein shot his masterpiece Ivan the Terrible here, Andrei Tarkovsky made many of his acclaimed films in these studios.

The enterprise survived the financial pressures of the turbulent 1990s by slashing the number of films it put out and renting equipment and studio space to Western firms. Mosfilm remains weakened by economic hardship, but employees were confident the worst was over. The explosion last week of the new row with the Culture Ministry has shaken their certainty.

The facts of the dispute are partly concealed by extravagant accusations from both sides. Mosfilm's general director, Karen Shakhnazarov, said the delicate state of the film industry meant the studio needed protection from pressure to make money. 'In five years' time, when Russian cinema is back on its feet, it may make sense to privatise. But because the industry does not bring in a profit, new owners will be tempted to restructure Mosfilm to earn them money,' he said. 'We suspect that any private investor will start to develop the valuable land on which we are based and we'll have casinos, hotels and flats here instead of film studios. This will have a catastrophic impact on Russian culture.'

Pointing to the corruption that has tainted the privatisation of many state assets, he warned there was no guarantee the studio would fall into the right hands.

Russia's Culture Minister Mikhail Shvydkoy dismissed these concerns, and denied full-blown privatisation was on the agenda, yet. He accused Shakhnazarov of financial mismanagement and of seeking to squeeze a profit out of the state-owned business himself by renting studio land out to furniture manufacturers and car repair firms and (most woundingly) building a plastic bottle manufacturing factory on the site.

There is no sign of the bottle plant. Instead most of the 13 film studios are being used for filming. Advertisements, music videos and television serials provide the most stable income, but money is also generated by selling rights to the 1,500 surviving films to television companies. Mosfilm breaks even by providing services, such as costume warehouse, to Western ventures. Last week the costume department provided hundreds of 1960s Soviet clothes for the filming of Harrison Ford's submarine disaster movie in Moscow.

The making of feature films has receded in importance. Last year Mosfilm shot three of its films here - partly because there was no money, partly because there was a limited appetite among Russian viewers for home-made films. In 1999, none of the eight new films made by Mosfilm were bought by Moscow cinemas.

But government officials and film directors agree signs of a revival in the industry are visible. Alexander Golutva, Deputy Culture Minister, said: 'Although Russia's film business is still in a bad state, the worst is behind us.'

In this climate of muted optimism, he said, it was only appropriate to think of privatising the studios. 'It will be done in stages and cautiously, to ensure that the character of the studios is not changed and they continue to make films. The idea is not to sell the studios immediately, but to create the possibility in the future.'

But Shakhnazarov's anxieties remain. 'Mosfilm made a massive contribution to the development of cinema in the last century,' he said. 'It isn't simply a business. It is a cultural institution, no less important than the Hermitage or the Bolshoi Theatre. It has to be preserved.'