The students were taken to a nearby park while police and bomb experts examined the grenade.
The school's principal said the student thought it was a money box in the shape of a grenade, but when she showed it to a teacher, the teacher was immediately alarmed.
The teacher contacted the proper authorities, and students were cleared from the school.
Police said the grenade looks like a WWII-era pineapple type and is inactive.
"We've had it appraised by our local bomb techs who have sent some photos off to the department of defense who are concerned enough to actually send people from Sydney to come and take possession of the item," police officer Gerald Lawson said.
Classes at the school were canceled for the day, and students were sent home.
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