WA researchers have received a $2 million grant for a project to turn vast saline ponds of algae into biofuels.

Murdoch University researchers will lead the project, in association with the University of Adelaide, Parry Nutraceuticals of India and the South China Institute of Technology. The funding is from the federal Environment Department.

The project involves developing open ponds - or photo-bioreactors - of algae in saline water in Australia, India and China.

Murdoch's Professor Michael Borowitzka said algae was one of the most promising biofuels on the planet as it doesn't compete with food production, can be grown in saline water and produces 10 to 20 times the oil produced by other crops.

He said the process was too expensive at present to be economically viable but work was continuing on reducing the cost through studying different algae strains and improving the production process.