The expansion of the Springvale coal mine west of Sydney is likely to go ahead after authorities recommended measures to combat feared impacts on the city's water supply.
The NSW Department of Planning and Environment has recommended the Springvale expansion for approval and the final decision now lies with the independent Planning Assessment Commission (PAC).
Environmentalists had opposed the expansion, fearing underground mining would crack and drain sensitive swamps and contaminate a major river that feeds into Sydney's water supply, Lake Burragorang.
Colong Foundation for Wilderness director Keith Muir said opponents of the project had scored a win, with a second independent review of the mine ordered by Planning Minister Rob Stokes recommending strict controls on salty waste water from the expanded mine.
The saline mine water would have been sent into the Cox's River, which feeds into Lake Burragorang.
The Department of Planning has recommended consideration of redirecting waste water for use in the Mount Piper power plant, which takes coal from Springvale.
Mr Muir described the department's recommendation - published on Friday - as a vindication of a second review of the Springvale expansion by the PAC.
However, he said more work was required to protect swamps on the Newnes Plateau, which will be put at risk of draining by underground mining.
Mr Stokes ordered the second review - angering mine owner Centennial Coal - after a change to state planning laws removed a condition that gave priority to economic benefits from mining developments ahead of social and environmental impacts.
In a statement, Centennial Coal said it welcomed the Department of Planning and Environment's recommendation for approval and said it would consider the transfer of salty waste water to Mount Piper.
"Transfer of discharged mine water to Mount Piper power station has always been an option and continues to be an option," the statement said.
Springvale is the only mine supplying coal to the Mount Piper power station, which provides 15 per cent of NSW's electricity.
Centennial had stood down most of its workforce of 300, pending approval of its expansion plans because the current Springvale mine has almost exhausted its coal resource.
The PAC will now make a final decision on whether the expansion - which will allow Centennial to extract 4.5 million tonnes of coal per year for another 13 years - will go ahead.