India on Tuesday rejected a plan by UK-based mining group Vedanta Resources to mine bauxite in an eastern state over environmental concerns, a blow to the firm already facing hurdles to a planned $9.6 billion energy deal in the country.   

The decision comes after about four years of a global campaign against Vedanta's plan to mine in Orissa state that the government says could affect large swathes of forested hills considered sacred by indigenous tribes.

Vedanta set up a 1-million-tonne alumina refinery in Orissa in 2008 which was running on bauxite from a neighbouring state while it awaited a mining lease closer to the plant to help cut operating costs.

"There have been serious violations of environment protection acts," Environment Minister Jairam Ramesh told reporters. "There is no emotion, no politics, no prejudice ... I have taken the decision in a purely legal approach."    

Ramesh also asked Vedanta to explain why its permit for the alumina refinery should not be cancelled because it was taking bauxite from mines that did not have green clearance.

The blow comes as Vedanta seeks to buy a majority stake in Cairn India from its UK-based parent Cairn Energy, although India's trade minister said on Tuesday state-run Oil and Natural Gas Corp should have a say in the deal.

Vedanta's project in Orissa is valued at about 450 billion rupees ($9.6 billion). London-listed shares in Vedanta were down more than 6.9 percent on Tuesday and shares of its Mumbai-listed unit, Sterlite Industries, closed down nearly 4 percent.

Vedanta is among several top corporations, including South Korea's Posco, whose Indian projects face delay as a proactive environment ministry tightens rules that often brings it in conflict with other government ministries pushing for rapid industrialisation.   

But Ramesh said the decision did not amount to "blacklisting" Vedanta, signalling that the firm could seek to mine elsewhere provided it stuck to the rules.
   
Vedanta says the mining site is located in an uninhabited area so no one will be displaced, and that the project will help lift the poor district out of poverty.

But groups like ActionAid say the hills are home to three vulnerable tribes -- the Dongria Kondh, Kutia Kondh and the Jharania Kondh -- protected by the constitution and activists say 8,000 people rely on the mountain for water, fruit and animals.

Vedanta denied any regulatory violation by its refinery and said in a statement the Orissa government was "actively considering" giving the firm an alternative bauxite mining site.

The environment ministry decision comes after a government panel said last week giving permission to Vedanta would violate green guidelines and may have a serious impact on security, referring to a worsening Maoist insurgency that feeds partly off the resentment of people displaced by large industrial projects.

Ramesh wants to protect and expand India's remaining forest land as part of a strategy to fight climate change, but that could mean giving up mining about a quarter of the country's mineral reserves, needed to power Asia's third-largest economy.

Vedanta is already facing regulatory hurdles in its bid for control of Cairn India, which would give billionaire Anil Agarwal's group a slice of India's oil reserves.   

Late on Monday, an oil ministry source said all options were open for Indian state energy firms to make a counter bid. - Reuters