The state government has rejected a NSW Aboriginal Land Council bid to explore for coal seam gas around Wollongong, removing a major hurdle in the path of gas explorer Apex Energy.
The NSW Aboriginal Land Council applied in March for a licence to examine a stretch of land from Primbee in the south to Clifton in the north, sparking an angry response in the Illawarra.
But the application has now been refused, NSW Trade and Investment confirmed.
Authorities can now turn their attention to Apex's competing application, which covers an almost identical area but was lodged a week later.
Apex had a previous licence to explore the area but failed to renew it before the expiry date.
Illawarra Local Aboriginal Land Council chief executive officer Sharralyn Robinson yesterday said the organisation was "rejoicing" that the state land council's application had been refused.
"This land council objects to CSG mining and ... are part of that movement to lobby against CSG mining here in our area," she said.
"Our core business is to protect and preserve country so when we heard that our state land council had made an application we were very disappointed in that."
She said while NSW Aboriginal Land Council chief executive Geoff Scott had his "heart in the right place" in trying to achieve economic independence, the local group believed CSG was the wrong move.
Ms Robinson said the Illawarra land council did not oppose mining, but mining companies had to compromise.
"We've carved up enough of our country, we've destroyed enough significant sites and we've ... damaged enough of our waterways," she said.
A comment was sought from the NSW Aboriginal Land Council.
A NSW Trade and Investment spokeswoman said the land council's Special Prospecting Authority application was assessed and refused because it "did not meet the government's minimum standards".
Neither the land council nor Apex's application would allow drilling at this stage.
However, Apex already had planning approval to drill 16 exploration boreholes around Darkes Forest and Maddens Plains.
The company recently applied for a time extension for the project. If exploration is a success, it ultimately hopes to drill between 150 and 200 boreholes.
The CSG plans have triggered a community backlash in the Illawarra.
Stop CSG Illawarra spokeswoman Jess Moore said Apex's application should also be rejected.
"We want to see our land and water protected and until that's the case no more applications should be granted," she said.
A spokeswoman for resources and energy minister Chris Hartcher said the refusal of the NSW Aboriginal Land Council's application had "nothing to do" with Apex's application.