The New South Wales (NSW) Department of Planning and Environment has recommended Shenhua's Watermark coal project for approval, moving the $1bn development closer to construction.
Located 25km south-east of Gunnedah on the Liverpool Plains, the open cut coal mine is expected to produce ten million tonnes of coal a year if approved, and would employ more than 600 people.
In September, the Planning Assessment Commission (PAC) recommended Watermark as approvable, subject to more tests being conducted on its water modelling and rehabilitation design work.
NSW Department of Planning and Environment spokesperson said: "A key consideration in the department's assessment was the value of the Liverpool Plain, some of the most fertile and productive land in NSW.
"The project is on higher ground above the black soil plains and extensive groundwater modelling has confirmed there would not be any significant impacts on aquifers or agricultural production."
A spokesperson for the department said that, in response to the PAC's review, the company had conducted more extensive groundwater modelling, which had been reviewed by an independent water expert.
Following a final assessment by the department, the project will be referred back to PAC for a final decision.
However, Caroona Coal Action Group spokesman Tim Duddy was quoted by ABC Online as saying that the mine should not be approved, as there are substantial issues regarding its proximity to aquifers.