Green groups said Thursday that one of the world's biggest pulp mills which started production on Indonesia's Sumatra island last month was causing enormous environmental damage.

The groups said the $3 billion mill belonging to industry giant Asia Pulp and Paper (APP) was sourcing raw materials mostly from trees grown on drained peatlands, where haze-belching fires occur every year.

The mill produces a raw material which can later be made into paper.

Woro Supartinah, whose NGO was among the groups protesting the mill, called on the Indonesian government to "promote a broader set of interests" than just helping major companies reap profits.

"Restoring peatlands will generate economic growth and environmental security over the long term," she said.

The groups who protested the mill included Wetlands International, Eyes on the Forest and Rainforest Action Network.

APP said it was aiming to responsibly increase its production capacity.

It said in a statement that its pulpwood suppliers were bound by its conservation policies, which include committing to "no new development on peatland since February 2013 as well as the implementation of responsible, peatland best management practice".

Vast areas of peatland, which store carbon, have been drained in recent years using networks of canals to convert them into plantations for trees to produce pulp and palm oil.

The drained peatlands emit greenhouse gas carbon dioxide into the atmosphere, and also create arid tracts of land that are vulnerable to going up in flames.

Huge fires erupt on and around plantation land every year on Sumatra, much of it in peat.

The fires in 2015 were among the worst on record and cloaked Southeast Asia in toxic haze for weeks, causing many to fall ill, schools to close and flights to be cancelled.

About three-quarters of the plantations supplying APP's mill -- 6,000 square kilometres (2,300 square miles) -- are on peatlands, the groups said.

Indonesia's government has in recent years stepped up efforts to protect peatlands, especially after the fires in 2015, which according to the World Bank caused $16 billion in losses to the archipelago's economy.