The government is facing calls to withdraw its financial support for Swiss companies involved in the controversial Ilisu hydro power plant in southeastern Turkey.
Four engineering and consulting firms supply SFr225 million ($202 million) in goods and services - alongside other companies from European countries - and benefit from state insurance cover.
Development aid organisations and parliamentarians accuse Turkey of reneging on international social and environmental standards despite repeated pledges since 2006.
They say Switzerland's credibility is at stake if the government refuses to withdraw its support.
Economics Minister Doris Leuthard told parliament the government was fully aware of Turkey's failure to adhere to international agreements.
She outlined the procedure that could result in Switzerland withdrawal from the project, but did not specify when the relevant clause would be invoked.
"If the conditions are not met, the three export risk agencies can take action against the insurance takers under the terms of the contract. The deals with export risk and suppliers can be cancelled as a last resort," she told parliament last week.
She said it was up to the export risk agencies to give notice and launch the process - known as the Environmental Failure Notice - which would automatically stall construction.
The measure has not been applied before.
Green parliamentarian Marlies Bänziger says the statement is a reason for hope. She insists that the Swiss authorities should act now.
"Switzerland's reputation could be seriously hampered if the Swiss don't pull out. I will press for the export risk agency to be privatised if the government fails to take measures."
She said the state-funded export risk insurance scheme only makes sense if social and ecological demands can be imposed.
In a similar vein, centre-left Social Democrat parliamentarian Silvia Schenker called on the government to notify Turkey of Switzerland's withdrawal.
Schenker added it was crucial to pull the plug before the construction work on the Ilisu dam on the River Tigris begins in October as planned.
Both say the Turkish authorities have had more than two years to fulfil the more than 150 criteria for foreign investments to the tune of SFr531 million.
A Swiss pullout would have wider political and economic implications and could sour relations with Ankara.
The Swiss president and the economics minister are both planning to travel to Turkey in November to boost bilateral relations.
Last month, the Turkish foreign minister visited Switzerland, which is apparently involved in mediating secret talks between Turkey and Armenia.
Relations have been strained over the recognition of the genocide of more than one million Armenians at the beginning of the 20th century.
The Swiss Export Risk Insurance confirms that independent experts found a striking lack of progress by Turkey on implementing international standards. But it warns against hasty action.
"We believe Turkey still has time to set things straight," said spokeswoman Sonja Kohler.
She said negotiations are underway between the parties involved and that it could take several months before Switzerland can withdraw.
Alstom Switzerland, one of the companies doing business for the Ilisu dam, said it had taken note of Leuthard's statement, but gave no further comment.
The non-governmental organisation, the Berne Declaration, is anxious to see action.
"For weeks now the Swiss authorities have pledged to take the necessary steps to serve a third and final warning," said spokeswoman Christine Eberlein.
But she also has some praise for the Swiss government because "it has tried at least to convince Turkey to respect international standards".
Eberlein describes the findings of the independent experts as "devastating" and pointed out that Turkey still has not set up a special committee dealing with the pending social, cultural and environmental issues in connection with the dam project in the Kurdish region.
Protests are planned in the Batman region over the next few days, according to Eberlein.
An estimated 60,000 people have to leave their homes to be resettled, ancient cultural landmarks will disappear and the water of the Tigris will be polluted as a result of the dam project.
There are concerns about environmental social issues, particularly repression of the Kurdish population in Turkey as well as potential political tensions with neighbouring Iraq and Syria.
swissinfo, Urs Geiser
The Ilisu dam is part of a larger hydro-power project drawn up by the Turkish authorities in 1991. 22 dams and 19 power plants are planned on the Tigris and Euphrates rivers in the southeast of the country.
The Ilisu dam will be 135 metres high and 1,820 metres wide holding a reservoir of 10.4 billion cubic metres of water.
The Turkish authorities pledged to fulfil more than 150 standards set by the World Bank and other international institutions to win investors for the project.
NGOs say up to 60,000 people in the majority Kurdish region of Turkey will have to be resettled.
Four Swiss companies - Alstom Switzerland, Colenco, Maggia and Stucky - are part of an international consortium.
They were granted an export risk guarantee from the Swiss government worth SFr310 million, alongside credits from Austria and Germany.
A previous consortium collapsed in 2002 when several players pulled out following fierce criticism from environmental groups and other pressure groups.