(Reuters) - Schools and workplaces on the tiny Pacific island of Nauru will close and areas will be evacuated on Thursday while Australian army sappers try to defuse a 500-pound (227 kg) "armed and dangerous" World War Two-era bomb.

       Acting President Martin Hunt has declared a state of disaster covering the whole of Nauru, one of the world's smallest nations with a land area of just 21 sq. km (8 sq. miles) and a diameter of 5 km (3 miles).

       "The item is extremely dangerous so our key concern has been the safety of the people of Nauru as well as the vital infrastructure that supplies water and power that is in the immediate vicinity," commander Lieutenant Jordan Bell said in an Australian Defence Force statement.

       Nauru's population of 11,000 live along a coastal strip just 150-300 m (yards) wide.

       On Thursday morning, a 2 km area around the bomb will be evacuated as the Australian sappers try to disarm the fuse. Residents were advised to cover windows with blankets before they evacuate to prepare their homes for possible blast damage.

       Hunt on Wednesday ordered schools to shut and prohibited work from Thursday morning as a precaution to manage any bomb impact.

       "It is very unlikely an unintended detonation (explosion) will happen; however, if the bomb detonates, water, electricity and housing within the cordon may be damaged," the Nauru government warned residents.

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       Nauru is 4,500 km from Australia, with infrequent air links. It was the scene of fighting between the United States and Japan in World War Two.

       The unexploded bomb was discovered by construction workers working on utilities groundworks on July 7.

       (Reporting by Kirsty Needham; Editing by Angus MacSwan)