The company's permit granted by the US Army Corps of Engineers would have allowed it to put 4.5 million tons of rock waste, or mine tailings, into the lake over a decade. The deposits would have raised the height of 23-acre Lower Slate Lake by 50 feet, so the company proposed building a 90-foot-high dam at the site in the scenic Tongass National Forest.

The US 9th Circuit Court of Appeals said no to the plan, overturning a lower court ruling.

"The toxicity of the discharge may have lasting effects on the lake and may negatively affect its ability to sustain aquatic life in the future," Judge Procter Hug wrote for a three-judge panel.

The permit, issued under a 2002 Environmental Protection Act policy change that eased mining rules, was the first to allow a hard-rock mine to dispose of tailings in a natural body of water under US environmental rules dating from the 1970s.

"The Corps violated the Clean Water Act by issuing a permit to Coeur Alaska for discharges of slurry from the froth-flotation mill at the Kensington Gold Mine," the judge wrote.

Idaho-based Coeur, one of the world's largest silver producers, said depositing tailings in the lake was the most practical and environmentally sound option. In such mining, rocks are crushed and ground and then put into a tank with chemicals and water that allow the gold to rise to the surface of the liquid. The tailing remains must then be removed.

Coeur Chief Executive Dennis Wheeler, speaking at the Reuters Mining and Steel Summit in New York on Tuesday before the ruling was announced, said that Kensington is nearly 90 percent built and could be completed by September.

"I was reasonably encouraged a couple of weeks ago when the plaintiffs ran a public interest advertisement in the Juneau newspaper suggesting they would like to sit down with the company to see if there was a way to resolve the question of the tailings disposal for Kensington," he said.

"We are very interested in continuing to explore a way to resolve Kensington."

Coeur d'Alene shares fell after the news and ended down 1.35 percent on the New York Stock Exchange on Tuesday.

The case could affect other mines, including the Pebble copper and gold project proposed by Northern Dynasty Minerals Ltd. in Alaska's salmon-rich Bristol Bay region.

In its Tuesday ruling, the 9th Circuit also said a permit granted to Goldbelt Inc., a corporation owned by Alaska natives, to build a marine terminal should also be vacated.