Malaysia's Court of Appeal on Wednesday dismissed an appeal against a temporary operating licence for Australian mining company Lynas Corp, despite protests over alleged radioactive hazards.
The decision enables the Sydney-based rare earths miner to continue operations at its $800 million plant in the eastern town of Kuantan, in Pahang state, in the face of residents' opposition.
The appeal court affirmed a lower court decision which denied a group of residents living near the facility a stay of Lynas' temporary licence, pending a judicial review.
Lynas secured the licence in early September and began production on November 30 although activists have been protesting over alleged radioactive hazards since early 2011.
Environmental group Save Malaysia Stop Lynas, which is spearheading the move to scupper the firm's plans, said it will now focus on the February 5 judicial review of the government's decision to award the temporary licence.
"The judge said the decision by the Kuantan High Court was correct and with good reason. It's a small setback which we expected but the real long-term goal is winning the judicial review," the group's leader Tan Bun Teet told AFP.
Lynas meanwhile hailed the legal victory saying it will continue its operations in Malaysia that began three weeks ago.
"There is no injunction or stay preventing Lynas from carrying out its operations at its Malaysian plant," it added.
The refinery is set to become one of few sites outside China to process rare earths -- metals used in high-tech equipment ranging from missiles to mobile phones.
Lynas and the Malaysian government have touted the facility as an important high-tech foreign investment project that will benefit the local economy and provide jobs.
But it has been dogged by criticism from environmentalists and residents, opposition that has galvanized a nascent "green" movement in Malaysia and seen anti-Lynas protests by thousands of people.
Legal moves to block the plant have repeatedly postponed its start-up and opponents last month staged a 13-day, 300-kilometre (186-mile) march from Kuantan to the capital Kuala Lumpur to rally opposition.
Media reports said the march had swelled to several thousand by the time it reached the capital.
Lynas, however, insists the plant is safe and that any radioactive waste would be low-level and not harmful.
China currently supplies about 95 percent of the world's rare earths. Lynas hopes the Malaysian plant, which will process material from its Mount Weld mine in Western Australia, will help break Chinese dominance of the market.
Lynas has said that by early 2013 the plant will be able to supply 22,000 tonnes of rare earth concentrates per year.