The Royal Navy is set to dismantle the sunken 'bomb ship' SS Richard Montgomery, after an assessment reported its cargo of unexploded ordnance could cause "mass damage and loss of life."

The warship has remained a danger to shipping since August 20 1944, when it sank off Sheerness loaded with explosives, and still has 1,400 tonnes of bombs on board.

Earlier this year the Ministry of Defence offered to pay £5 million 'danger money' to any company prepared to hack off the rusting masts.

Now Navy specialists have been tasked with helping to remove the masts, with a two month operation said to go ahead in June, the Telegraph has reported.

An MoD document said to have been seen by the newspaper states that if the masts were to collapse, in the worst case it could lead to: "an explosion impacting the local area including the nearby oil and gas facilities in Sheerness leading to mass damage and potential loss of life."

The huge oil and gas terminal is actually on the Isle of Grain, not Sheppey.

The report says bomb disposal experts will seek to make the wreck safe and warns that if it exploded it could create a "300m wide column of water and debris nearly 3,000m into the air and generate a wave 5m high". It is believed to be the first time the MOD has admitted the possible damage an explosion on the wreck could cause.

The Maritime and Coastguard Agency - which commissions regular surveys to check how dangerous the ship is - says the risk of a major explosion is remote.

Peel Ports, which operates Sheerness Docks, is responsible for marking and guarding the wreck with warning notices fastened to the masts and a circle of buoys around the ship. The seabed around the wreck was surveyed in October to check for spilled explosives before the dismantling of the masts begins.

On October 1, the MOD awarded the contract for removing the masts to Briggs Marine Contractors (Burntisland) for £4.6 million.

The Richard Montgomery was originally built in Jacksonville, Florida, in 1943 to take vital supplies to Europe and sailed across the Atlantic in convoy.

The captain was ordered to anchor off the Great Nore but the water was too shallow, and as the tide fell, the ship went aground on a sandbank, breaking its back.

Bad weather, and increased danger as the ship settled, forced stevedores and Navy divers to abandon attempts to unload it.