The Environment Minister Donna Faragher has given the green light to Perdamam Chemicals and Fertilisers plans for a $3.5 billion Collie urea plant.
The decision comes just weeks after the company also received federal government approval for the project.
Mrs Faragher approved the Environmental Protection Authority's assessment of the project which will be subject to a range of conditions governing flora, fauna, noise and air emissions.
The company said these conditions will be complied with during the construction and operations phases of the project.
Perdaman's chairman and managing director Vikas Rambal said the environmental approval marked another important milestone.
"This is more positive news for the Perdaman Collie Urea project and one of a number of milestone announcements that I intend to make in the short term, as we progress steadily towards the construction phase of the project," he said.
"This is the final decision on what has been an extensive environmental impact assessment process and we are satisfied with the conditions imposed by the Minister."
Last week, Incitec signed a 20-year off-take agreement with Perdaman Chemicals and Fertilisers.
The agreement covers the purchase of 2 million tonnes of granular urea fertiliser a year once production starts in 2014.
Perdaman expects to finalise funding for the project and approve development by the end of this year.
