A nonlinear mechanism of inertial Alfven and electromagnetic waves generation in space dust plasma is proposed. Parametric instability of pump upper-hybrid wave is considered as the generation mechanism. Due to this instability the pump upper-hybrid wave decays into electromagnetic waves (propagating along/ across the ambient magnetic field) and inertial Alfven wave. A nonlinear dispersion relation describing the three-wave interaction and instability growth rate is deduced from the three-fluid magnetohydrodynamics equations. It is shown that the generation of left-polarized electromagnetic wave is more effective than the generation of ordinary one. The nonlinear process under consideration can take place in the Earth's magnetosphere, interstellar clouds, cometary tails, planetary rings etc.