The decision puts an end to an appeal by local Camberwell residents who opposed the project on environmental and health grounds.

Justice Nicola Pain said in her ruling: “On balance, I consider that approval can be granted but that approval must be subject to adequate conditions about which a number of issues of clarification and possible alteration remain.

“Final orders in relation to disposition of the appeal will be made when conditions have been finalised.”

The determination is subject to the resolution of conditions with further discussions between both parties and the judge due to be conducted in the coming weeks.

Yancoal investor relations GM James Rickards said: “We are taking the appropriate time to review today’s determination and will continue to work with the court in the interests of achieving a final resolution.”

The proposed South East open cut project will extract about 3.6 million tonnes per annum of run of mine coal, creating around 160 jobs.

The project will be developed as part of the Ashton coal operation, using its coal handling, preparation and loading facilities. The South East open cut will add to production from the longwall mine.

The project was granted approval by the NSW Planning Assessment Commission in October 2012, following environmental assessment and fulfilling regulatory requirements.

The decision was met with dismay by local environmental groups, including NSW Environmental Defenders Office.

“While the prospect of this mine being approved is disappointing for the Camberwell community, the wine growers and farmers downstream of the mine, there is still some scope for setting conditions designed to minimise adverse impacts on air and water quality and prime agricultural land,” EDO principal solicitor Sue Higginson told the Sydney Morning Herald.