President Obama yesterday rejected the proposed Keystone tar sands pipeline, prompting celebrations among environmentalists who immediately hailed an "iconic David and Goliath victory" against "Big Oil".

The decision provides a major boost to green NGOs and could deliver long-term benefits to green businesses, as the rejection of the proposed pipeline connecting Canadian tar sands to refineries on the Gulf Coast will bolster the case for the US to enhance its energy security through investments in clean energy.

However, environmentalists' victory could prove short-lived. In blocking the pipeline, President Obama stressed that he was not in fact rejecting the plans put forward by developer TransCanada, but was instead responding to an unrealistic deadline imposed by Republicans in Congress, which according to the Obama administration made it impossible to adequately assess the impacts of the project.

"The rushed and arbitrary deadline insisted on by congressional Republicans prevented a full assessment of the pipeline's impact," he said. "This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the state department from gathering the information necessary to approve the project and protect the American people."

The State Department similarly stressed future planning applications for pipelines capable of carrying the carbon-intensive oil extracted from Canadian tar sands could be approved.

"The department's denial of the permit application does not preclude any subsequent permit application or applications for similar projects," it said in a statement.

TransCanada has already signalled that it will submit plans for a new route for the $7bn pipeline and again seek planning permission.

Meanwhile, the pipeline is near certain to be approved if President Obama loses November's election.

Republicans in Congress responded to the rejection by confirming that they would continue to pursue legislation that would allow them to approve the pipeline, while the party's presidential candidates lined up to condemn Obama's decision.

Frontrunner for the nomination, Mitt Romney, led the way arguing that Obama's decision demonstrated that he has displayed a "lack of seriousness" over the opportunity to create thousands of jobs.

The project is now set to pay a central role in the Presidential race with Republicans and some business groups accusing Obama of rejecting a project that could have created jobs and enhanced US energy security.

In contrast, Democrats are expected to tout the decision as evidence of both the disruptive tactics Republicans have used in Congress and Obama's commitment to environmental issues.

The decision was also criticised by the Canadian government, prompting speculation that it could respond by looking to ship more of its tar sands oil overseas.

Hearings are due to begin this month on a proposed pipeline from Enbridge Inc. that would transport tar sands crude from Alberta to the coast, where it could be shipped to Asian markets. Meanwhile, the Canadian government is also involved in a long-running battle with the EU to try to open up the European market to tar sands exports.

However, Obama's decision was still hailed as a major victory by green groups, who also warned that any new planning application would face the same level of opposition that helped to ensure the first proposal was blocked.

"President Obama has shown bold leadership in standing up to Big Oil and rejecting the Keystone XL pipeline," said Erich Pica, president of Friends of the Earth. "The climate movement took on Goliath and won, demonstrating its growing strength. Sustained grassroots pressure aimed at holding the president accountable to the public interest proved more powerful than all the lobbyists and campaign cash the oil industry could muster."