Machu Picchu, the lost city of the Incas, is South America's most renowned archaeological site. Set high in the Peruvian Andes, this citadel stands as testament to the once vast Inca empire that stretched 3,000 miles from Colombia to Chile.

But in recent weeks the city of the sun-worshippers has come under increasing fire. First, a sacred sundial was damaged after a US advertising agency accidentally dropped a 1,000 lb crane on the ancient granite while shooting a beer commercial.

And then outraged locals laid siege to the city for four days, protesting about a lack of investment in the site that is the country's biggest tourist draw.

Only indigenous locals knew of the existence of Machu Picchu until 1911, when an American explorer called Hiram Bingham brought the jungle-covered city to the world's attention.

Today it attracts more than 300,000 visitors a year. For a poor country that relies on the revenue yielded by its tourist trade, the preservation of Machu Picchu and its Inca Trail has nationwide implications.

Pressure groups wanting to limit the number of people visiting the site have this year persuaded authorities to raise the fee for the Inca Trail from £12 to £40, as well as imposing a new limit of 500 hikers each day.

But it is the proposed development of a cable car to carry tourists from the foot of the mountains to the city itself that is sharply dividing public opinion in Peru.

A year ago, when news slipped out that President Alberto Fujimori had tentatively given the go-ahead to the development, worried environmentalists and archaeologists started a campaign to stop the plans.

They argued that the construction of the cable car would devastate the local environment, as well as increasing the number of tourists by a damaging 400 per cent.

In the 12 months since the predictable outrage first surfaced, the Fujimori administration, now on its way out of office after last week's secret-service bribery scandal, has kept its mouth firmly shut on the scheme's final outcome. However, those close to the controversial scheme have hinted that the government will announce its final decision by the end of the year.

The small town of Aguas Calientes nestles at the foot of the mountain on which Machu Picchu is built. It is here that most visitors arrive by train from Cusco, the largest city in the region. They then board buses for a short but winding 20-minute journey from the station to the Inca city itself.

If plans go ahead, they will instead catch the cable car in Aguas Calientes for a sixminute journey to Machu Picchu, giving them a bird's eye view of the Inca ruins.

According to Jose Soto Vera, mayor of Aguas Calientes, those making a decision on the cable-car scheme have not canvassed the views of the local indigenous people.

"We all live by tourism. We work in restaurants and sell handicrafts, so increasing the number visitors can only be a good thing because it will bring our poor community economic benefits." he said.

This view was supported by the hundreds of locals who last week barred the tourists' entrance to the city. They claimed that poor roads leading to the site were costing their community untold thousands, because the attraction was unable to cope with the increasing demand from foreigners wanting to visit the site.

They also argued that the cable car would leave less of an environmental impact on the landscape than the bus system.

It is a view promoted by the Machu Picchu Cable Car Company, the organisation that quietly won the government's backroom auction to construct and run the scheme. Roberto Persivale, general manager for the group, said: "The cable car will not be as destructive as everyone says. At the moment there are 20 diesel buses travelling up and down a dirt track that is prone to landslides in the rainy season. The buses are polluting the environment while the cable car will run on electricity, which is much cleaner.

"People think we want to destroy Machu Picchu, but it is the jewel in the crown, and if you destroy it you destroy Peru's tourism."

Despite these claims, the buses currently used to transport Machu Picchu's tourists are far from the carbon-monoxide-spewing rust-buckets that the supporters of the cable car make them out to be.

In fact, the authorities have invested in small "hopper" buses, ensuring they are fitted with the latest catalytic converters to reduce harmful emissions.

Hector Walde, director of the Machu Picchu archaeological park for Peru's National Institute of Culture, says this kind of misinformation has been unhelpful in resolving the development debate.

Walde concedes that with more people than ever putting the mystical Inca city on their list of "must-see" destinations, Peru must act fast to capitalise on the tourist boom while preserving its unique heritage. However, at the moment this currency-hungry nation is unclear about the way forward.

A recent report by UNESCO said the cable-car project would "seriously affect the values, authenticity and integrity of the citadel and the surrounding landscape".