The Bistrica hydroelectric plant is near the town of Nova Varos in the south of the country.

The Yugoslav news agency, Tanjug, says two bombs or missiles hit the plant at about midnight.

A nearby bridge linking Belgrade to the Montenegrin port of Bar was reported to have been damaged in the same raid.

The BBC's Jim Fish: "Diplomatic moves are accelerating"

There were low-lying rain clouds over much of the country and our correspondent in Belgrade says it is likely the bad weather caused the temporary lull in Nato's increasingly-intensive air campaign.

However, there were reports of a large explosion in Belgrade on Wednesday morning, followed by a sound of air raid sirens.

If the blast were caused by an air attack, it would be the first daylight raid on the city by Nato since its campaign began.

(Click here for map of latest strikes)

Massive reinforcements

The BBC's Mike Williams: "It is not known if the plant is still able to function"

Nato has announced a massive reinforcement of its operation to end the Kosovo crisis - bringing the total number of aircraft poised against Yugoslavia to more than 1,000.

General Wesley Clark, Nato's Supreme Commander in Europe, said he had asked the alliance's member nations to provide hundreds more planes for the air campaign.

US President Bill Clinton has said he will be asking Congress for $4bn in additional funds to help pay for the cost of the campaign and extra assistance to refugees.

British Defence Secretary George Robertson: "I'm confident the air campaign will win"

Mr Clinton told Congressional leaders that he was still against sending in ground troops although he had not ruled it out.

He said the fate of hundreds of thousands of refugees in Kosovo itself was a concern and that it was hard to help them with air power alone.

German peace plan

Germany has drafted a plan to end the fighting in Kosovo.

The BBC's Terry Stiastny: "The plan says that Nato bombings would stop if Yugoslavian troops withdraw from Kosovo"

German Deputy Foreign Minister Ludger Vollmer told German radio the plan involved Yugoslav troops leaving Kosovo, the return of all refugees and the installation of an international peacekeeping force - possibly involving Russia.

European Union leaders will hear UN Secretary-General Kofi Annan's view on Kosovo when they gather for a summit in Brussels on Wednesday evening.

On Tuesday, the US and Russia failed to reach a deal over any Moscow involvement in an international force in Kosovo.

But Secretary of State Madeleine Albright described the talks with Russian counterpart Igor Ivanov as "useful", and said they had reached an "agreement on many of the basic principles" for an end to the crisis in Kosovo.

Russia has sharply criticised the air attacks on its traditional ally and last week President Boris Yeltsin warned Nato's actions could lead to a world war.

'Serb incursion' to Albania

General Clark said Nato was investigating reports that Serb troops had briefly seized a border post and attacked the village of Kamenica inside Albania.

The incursion - reported by international monitors and corroborated by the Albanian Government - followed several days of heavy border fighting between Serbian soldiers and the Kosovo Liberation Army.

Yugoslavia says the KLA is using villages just inside Albania's territory as bases for cross-border attacks - but denied that troops had entered Albania.

The Albanian Government later confirmed Serb troops had withdrawn from its territory.

Albanian President Rexhep Meidani warned of a tough military response if Yugoslavia made another incursion.

Montenegrin unease

The Yugoslav Navy has rejected a call by the director of the port of Bar in Montenegro that he remove all his ships to prevent a Nato attack.

The BBC's Allan Little looks at the best and worst scenarios for Nato

Bar, which is on the Adriatic coast of Montenegro, is the main commercial and naval harbour in the Yugoslav federation.

The port director, Petrasin Kasalica, asked the navy to leave on Monday after a gunboat in the port fired at a Nato plane.

But the navy commander, Admiral Milan Zec, said Mr Kasalica's letter was unacceptable, dangerous and an act against Yugoslavia.

Several hundred dock workers staged a rally in Bar against the navy, saying they were concerned for their safety and their jobs.

'Mass grave'

Among continuing reports of atrocities in Kosovo, a US defence official said an aerial photograph showed "freshly-turned earth that could be a mass grave" near the town of Velika Krusa, where a human rights group had reported a massacre of 40 Kosovo Albanian men.

More than 3,000 Kosovo refugees streamed into Albania on Tuesday.

Hundreds also crossed into Macedonia, the biggest group to arrive there since Yugoslavia closed its borders last week.

• Serbs warned over cross-border raid
• Refugees tell of systematic rape
• US and Russia offer hope
• Blair unveils troop build-up
• When war goes wrong