SACRAMENTO, California (AP) -- Nestle SA said Monday it is significantly scaling back plans in Northern California to build what would have been the largest water bottling plant in the U.S.

The announcement by Nestle Waters North America comes after years of opposition by environmentalists and a group of residents in the rural town of McCloud.

With soaring fuel and transportation costs, building a 1 million square foot (90,000 square meter) facility at the base of Mount Shasta no longer makes economic sense, said David Palais, Nestle's Northern California natural resource manager.

The company also has built a plant in Denver and expanded other facilities in the West. Palais told The Associated Press that those expansions make a large plant in California less necessary.

Nestle signed a contract in 2003 with the McCloud Community Services District to pump up to 521 million gallons (1.97 billion liters) of water a year. In exchange, the Swiss food and drink company agreed to pay $250,000 (euro162,000) to $350,000 (euro227,000) a year to the town of McCloud, about 200 miles (320 kilometers) north of Sacramento.

Palais said the company now will seek permission to pump a fraction of that water and build a much smaller plant of about 350,000 square feet (32,500 square meters).

Nestle will ask for just 200 million gallons (757 million liters) of water a year from the three natural springs that supply McCloud. He declined to say whether the company would ask to reduce its payments to the town.

The company said it also has agreed to two years of monitoring on Squaw Creek, a nearby trout stream. Fishermen, environmentalists and scientists had feared the stream might become warmer and lower if Nestle went ahead with its original pumping plans.

Critics of the plant welcomed Nestle's announcement but called on McCloud's five-member services district to negotiate a better contract.

''While it certainly is a smaller plant than it would have been, it nonetheless uses a large amount of water. It's still a major operation,'' said Severn Williams, a spokesman for the Protect Our Waters Coalition.

The coalition represents California Trout, Trout Unlimited and the McCloud Watershed Council, a citizens group.

It plans to lobby for a higher price for the water and a clause that limits Nestle to pumping only water from the springs around McCloud while prohibiting the company from touching the aquifer.

Williams also said the coalition wants a contract with a shorter timeframe than McCloud's current 100-year commitment to sell its water exclusively to Nestle.