Uruguay on Wednesday allowed UPM to increase pulp production at its Fray Bentos mill on the Uruguay River between the two South American nations. Uruguayan President Jose Mujica gave a green light for the plant to boost its production from 1.1 million tonnes a year to 1.3 million tonnes.
Argentina is concerned about potential environmental pollution in the river. Officials from Uruguay and Argentina met over the years-old dispute this week but failed to reach an agreement on the plant's output.
Argentine Foreign Minister Hector Timerman denounced the "unilateral" decision by Uruguay, and said Argentina would take its case to the International Court of Justice in The Hague.
In the past, environmentalists have protested the plant by blocking the bridge that provides it access from Argentina, but Uruguayan officials insist that the installation meets international environmental standards.