European Nickel won two exploration licences last year, for the village of Lipovac in central Serbia and for the village of Mokra Gora in the area of Mount Tara, a protected natural park in southwest Serbia.
But filmmaker Emir Kus?urica, who used Mokra Gora as the setting for his latest movie "Life is a Miracle" and has since settled there, said locals will not allow European Nickel anywhere near their village.
"Somebody granted the exploration rights against the law and will be held accountable," Kusturica told Reuters. "We’ll do whatever it takes to defend this virgin land from those who want to destroy the environment, take the money and run".
Government officials called a news conference to respond to mounting criticism, saying European Nickel had a new acid leach process that would not harm the environment.
"The village of Mokra Gora itself (around 10 square km) will be excluded from the exploration, even though geological research is completely benign," Deputy Energy and Mining Minister Djordje Mihajlovic told reporters.
The village, nestled on a green hillside, is also famous for its Sargan Eight train that twists through the mountains on narrow-gauge rails, crossing gorges and rushing streams.
The government-run Institute for Nature Protection said it had originally rejected giving the exploration rights to European Nickel because Mokra Gora was protected by local laws, but their decision had been overturned.
"Nickel exploration and exploitation cause serious environmental degradation and we cannot allow that," the head of the Institute Lidija Amidzic told Reuters.
"Protected nature and organic food can bring a lot more dollars than nickel".
The Institute said it has placed the village, which borders Bosnia, on a list of temporarily protected natural sites and will ask UNESCO this year to include it in its Man and Biosphere programme.
The government is also under fire for giving European Nickel an exploration licence despite a Serb-run study saying the low-grade ore does not justify mining operations.
Local authorities have said that even if mining was proved worthwhile, they would block it.