By Takaya Yamaguchi
TOKYO (Reuters) - Japan will increase an interest-free loan to the operator of the wrecked Fukushima nuclear plant, Tokyo Electric Power <9501.T>, by more than a third to 14 trillion yen ($123 billion), a source familiar with the matter said on Thursday.
Spiraling costs from the world's worst nuclear disaster since Chernobyl in 1986 are threatening the viability of the utility known as Tepco and hampering its ability to clean up its wrecked Fukushima Daiichi nuclear plant.
The increase in the loan from 9 trillion yen is to cover the costs for compensation and decontamination areas around the plant, according to the source, who is not authorized to speak to the media.
Three reactors melted down at the plant after a magnitude 9 earthquake in March 2011, which sparked a tsunami that devastated a large section of Japan's northeastern coastline.
More than 15,000 people were killed in the natural disaster, which also caused a loss of power and cooling at the Fukushima station.
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Explosions in the wake of the reactor meltdowns led to a massive release of radiation that prompted the evacuation of 160,000 people from areas around the plant, many of whom will never be able to return.
The disaster is likely to cost 22.6 trillion yen ($199 billion), more than double an earlier government estimate.
Costs for decommissioning the wrecked reactors will be covered by a separate arrangement from the loan, according to the Nikkei newspaper, which earlier reported the increase in the loan for Tepco.
($1 = 113.7100 yen)
(Reporting by Takaya Yamaguchi; Writing by Aaron Sheldrick; Editing by Richard Pullin)