The U.S. military sprayed up to 12 million gallons of the defoliant onto Vietnam's jungles over a 10-year period during the Vietnam War, and the question of compensation for the subsequent health problems is a major post-war issue.

Respiratory cancer and birth defects amongst both Vietnamese and U.S. veterans have been linked to exposure to Agent Orange.

"We are both moving earth and taking the first steps to bury the legacies of our past," U.S. Ambassador to Vietnam David Shear said at a ceremony at Danang airport on Thursday.

"I look forward to even more successes to follow."

The U.S. government is providing $41 million to the project which will reduce the contamination level in 73,000 cubic metres of soil by late 2016, the ruling Vietnam Communist Party's mouthpiece Nhan Dan daily said.

The contaminated soil and sediment will be excavated and heated in a pile structure to a high temperature to destroy the chemical, the U.S. embassy said in a statement on Thursday.

Vietnam's defence ministry has cleared unexploded ordinance from the airport site, to allow the clean up, and will built a power station to serve the project, said Shear.

Danang in Vietnam's central region is a popular tourist destination. During the Vietnam War, that ended in 1975, the beach city was used as a recreational spot for U.S. soldiers.

Agent Orange was stored at Danang airbase and sprayed from U.S. warplanes to expose northern communist troops and destroy their supplies in jungles along the border with Laos.

The United States and Vietnam were looking at a second clean up site, Bien Hoa, in the southern province of Dong Nai, said Shear.

The Bien Hoa airport is regarded as another 'hotspot' for dioxin contamination, along with Phu Cat airport in the central province of Binh Dinh.

The contamination level at Bien Hoa airport is higher than Danang airport, but only a small area of Bien Hoa has been buried to prevent the toxic waste spreading, the Ho Chi Minh City Law newspaper said.