WELLINGTON (Reuters) - New Zealand dairy giant Fonterra Co-operative said on Friday it had suspended operations in Sri Lanka because of an unstable situation in the country.

Earlier this week Fonterra was banned by a Sri Lankan court from selling products, and it is in a dispute with the country's food safety authorities about the presence of a toxic agricultural chemical in some products.

"The temporary suspension is the right thing to do. It is a precautionary measure to ensure our 755 people working there are safe. We have closed our plants and office in Sri Lanka, and have asked our people to stay at home," said chief executive Theo Spierings in a statement.

"Recent events, however, have made it difficult to maintain day-to-day operations, and we need to get them resolved."

(Reporting by Gyles Beckford; Editing by Kim Coghill)