Federal Environment Minister Sussan Ley has approved the controversial extension of the Brandy Hill quarry, paving the way for the clearing of 52 hectares that opponents say is koala habitat.
In announcing the decision on Tuesday afternoon, Ms Ley said strict new conditions had been attached to the project, including the establishment of a 74-hectare koala habitat corridor to support the local populations.
Construction materials company Hanson wants to clear the land as part of a proposal to expand its quarry.
The NSW Government had already approved the project in July, but the final decision rested with the Federal minister, under the Environment Protection and Biodiversity Conservation Act, because of its potential impact on koalas.
"The clear finding from the NSW Government and the Commonwealth Department is that Brandy Hill's expansion, to be staged over the next 25 years, will not rob the area of critical koala habitat," Ms Ley said in a statement.
"The 74-hectare koala corridor can, however, play an important role in nurturing local populations and in delivering a net gain for local koalas by providing better quality habitat than is there at present."
In recent weeks, the opposition to the quarry expansion had been growing, with celebrities such as Olivia Newton John and Jimmy Barnes lending their voices to the campaign.
In September, resident and campaign spokeswoman Chantal Parslow Redman said it was crucial that the minister rejected the project.
"We've already lost a quarter of koala habitat on public land in NSW during the black summer bushfires," Ms Parslow Redman said. "That makes the remaining unburnt habitat - including this habitat here in Port Stephens - that much more crucial.
"Our community won't simply stand by and watch as 52 hectares of critical koala habitat is destroyed in an area where koalas are breeding, at a time when this incredible species is facing extinction in New South Wales."
The minister said that report used on-site assessments to map the extent of the koala population and land use. She said the study determined that as few as one or two koalas were present in the proposed construction area.
"It is critical that we closely examine all assessments in the light of bushfires and habitat loss, but also important that we make informed decisions," Ms Ley said in her statement.
"This is not a region where bushfires have impacted local populations or habitat, it is not a site that is supporting breeding populations and, having reviewed the Department's recommendations, I have approved the proposal."
Sussan Ley said the 74-hectare koala habitat corridor would include bushfire buffer zones and protection for the marsupials from cars and dogs. She said that was in addition to the requirements already put in place by the state for Hanson to fund habitat off sets.
The minister said Hanson would spend about $2.5 million to secure an additional 74 hectares for the project that was worth about $22.5 million.
Just a month ago, at the official opening of the Port Stephens Koala Sanctuary, NSW Environment Minister Matt Kean looked to his Federal counterpart to determine the quarry expansion's fate, after his own government had approved the project.
"I think we should be doing everything we can to protect koala populations and their habitat, and that means securing that habitat into the future," he said at the opening.
"So my message to the Federal Environment Minister is, 'You should be looking very closely at this Brandy Hill decision, because a lot is turning on the decision you will make'."
Sussan Ley told the Newcastle Herald that "Minister Kean's remarks didn't weigh on my mind at all".
"He should be happy with an additional 74 hectares of good quality koala habitat that will come about as a result of this decision, and obviously his own government didn't come up with that additional 74 hectares," Ms Ley said.
Sussan Ley inspected the site last month and also met with residents and members of the Save Port Stephens Koalas campaign.
The minister said to the Herald she was impressed by the campaigners' passion for the koala. She acknowledged that their campaign helped achieve a "good outcome".
"The amenity of the region will be enhanced by significant additional high quality koala habitat, which is also natural to the area, and I think will provide over a time a really good quality," Ms Ley said.
"I think the residents were concerned about other aspects, but they talked to me about koalas... I think they'll be reassured by this additional belt of really good quality trees. This is a good outcome for koalas."