The Western Australian government rejected on Wednesday the application of LD Operations to run a coal mine at Osmington hear Margaret River.
In turning down the application, the Environmental Protection Authority (EPA) of the state cited threats to the groundwater of the area which is a grape-growing region.
WA Environment Minister Bill Marmion said the EPA found the coal mine project would have catastrophic implications on the Margaret River area and he upheld the EPA's decision.
LD Operations expressed disappointment with the decision which is claimed was based on a flawed assessment process. The firm said it is studying if it would appeal the decision.
LD was tapped by joint venture partners Vasse Coal and South West Coal, to secure approval for the Vasse Coal Project.
Resident Ian Parmenter is happy with the EPA ruling.
"This has been a long fight, it's taken us nearly 18 months and eventually the science and the good sense prevailed," ABC quoted Mr Parmenter.
He disclosed that when the decision was still pending, residents were hesitant on decisions about their properties and business decisions were frozen. With the ruling, he said the entire community would benefit.
"This was never a fight against mining, this was a fight against unsustainable and dangerous mining practices in this region," he added.
Mr Marmion previously backed the EPA's recommendation against the grant of a similar coal mining application by Eneabba for the proposed Central West Coal mine project.