An official with the Nuclear Safety Commission of Japan, speaking on national television, said the rating was being raised from 5 to 7 -- the highest level on the international scale.
The official, who was not named, said the amount of radiation leaking from the Fukushima Dai-ichi nuclear plant was around 10 percent of the Chernobyl accident.
The level 7 signifies a "major accident" with "wider consequences" than the previous level, according to the standards scale.
"We have upgraded the severity level to 7 as the impact of radiation leaks has been widespread from the air, vegetables, tap water and the ocean," said Minoru Oogoda of Japan's Nuclear and Industrial Safety Agency.
NISA officials said one of the factors behind the decision was that the total amount of radioactive particles released into the atmosphere since the incident had reached levels that apply to a Level 7 incident.
The action lifts the rating to the highest on an international scale designed by an international group of experts in 1989 and is overseen by the International Atomic Energy Agency.
In Chernobyl, in the Ukraine, a reactor exploded on April 26, 1986, spewing a cloud of radiation over much of the Northern Hemisphere. A zone about 19 miles (30 kilometers) around the plant was declared uninhabitable, although some plant workers still live there for short periods and a few hundred other people have returned despite government encouragement to stay away.
Meanwhile, setbacks continued at Japan's tsunami-stricken nuclear power complex, with workers discovering a small fire near a reactor building Tuesday. The fire was extinguished quickly, the plant's operator said.
Tokyo Electric Power Co., which operates the disabled Fukushima Dai-ichi nuclear power plant, said the fire at a box that contains batteries in a building near the No. 4 reactor was discovered at about 6:38 a.m. Tuesday and was put out seven minutes later.
It wasn't clear whether the fire was related to a magnitude-6.3 earthquake that shook the Tokyo area Tuesday morning. The cause of the fire is being investigated.
"The fire was extinguished immediately. It has no impact on Unit 4's cooling operations for the spent fuel rods," said TEPCO spokesman Naoki Tsunoda.
The plant was damaged in a massive tsunami March 11 that knocked out cooling systems and backup diesel generators, leading to explosions at three reactors and a fire at a fourth that was undergoing regular maintenance and was empty of fuel.
The magnitude-9.0 earthquake that caused the tsunami immediately stopped the three reactors, but overheated cores and a lack of cooling functions led to further damage.
Engineers have been able to pump water into the damaged reactors to cool them down, but leaks have resulted in the pooling of tons of contaminated, radioactive water that has prevented workers from conducting further repairs.
Aftershocks on Monday briefly cut power to backup pumps, halting the injection of cooling water for about 50 minutes before power was restored.
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