The beach is one of the most popular on the Cardigan Bay coast

Welsh Water has put on hold plans to connect several homes in Llangrannog and nearby Pontgarreg, near New Quay, to the public sewage system.

Some of the homes have ageing private storage tanks and there are fears they could leak into a stream near the sea.

However, Welsh Water said the cost of a public sewer system "could not be justified".

Last year, Llangrannog beach passed two water tests which has put it in line for a Blue Flag. An announcement about whether it has been successful is expected next week.

Blue Flags are awarded annually with water quality, beach cleanliness, provision of information and services, life-saving equipment, dog control and environmental management all taken into account.

This could have a major effect on businesses Cafe owner Julia Palframan

In 2003, the beach fell below European standards and after an investigation by the Environment Agency it was felt that faulty private sewage systems had contributed to the failure.

After building a �1.6m water treatment works, Welsh Water proposed connecting up to 20 homes in Llangrannog and Pontgarreg to the public sewage system.

But three years on the company has put its plans on hold. The area's county councillor Ian ap Dewi said he was "extremely worried".

'Significant cost'

"Originally Welsh Water said Pontgarreg would be connected to the water treatment works between 2005 and 2010 and the work was earmarked for 2009," said Mr ap Dewi.

"In 2003, Llangrannog's water did not come up to European standards. The risk is it will fall below European standards and this will affect businesses."

Llangrannog cafe owner Julia Palframan said Welsh Water had done a "marvellous job" so far, but the community's bid for a Blue Flag could now be in jeopardy.

"It doesn't make sense for them to stop the sewage system plans now," she said.

"This decision could have a major effect on businesses and the community, especially if we don't secure a Blue Flag."

Welsh Water said: "It is correct that we did plan to provide a public sewer at Llangrannog and Pontgarreg.

"However, after reviewing our assessment for this area, along with a number of other areas, and considering the monetary value of the environmental benefits, we found that the significant cost of providing a public sewer could not be justified."

The firm said it was arranging a meeting with one of its regulators, the Welsh Assembly Government.