The proposed $1.2bn Shenhua coalmine in New South Wales has been given the go-ahead to destroy the habitat of 262 koalas, which will be moved to another location if the mine goes ahead.

The decision was handed down by the NSW land and environment court on Friday in a case brought by local environment group Upper Mooki Landcare against Shenhua Watermark Coal and the NSW Minister for Planning.

The environmentalists argued the Planning Assessment Commission failed to assess whether the population of koalas in Gunnedah in northern NSW would be put at risk of extinction by the mine.

Sue Higginson from the NSW Environmental Defender’s Office (EDO), who represented Upper Mooki Landcare, said the result showed the NSW planning and threatened species acts failed to adequately protect wildlife against local extinctions.

The commission acknowledged that the koala population in Gunnedah had dropped by up to 70% since 2009. But the EDO said there had been wildly different estimates of the size of the remaining population. Shenhua said there were 12,753, but other estimates were as low as 800.

“The assessment of significance [of impacts] for the koala is totally inadequate. No details of the actual koala population to be impacted upon, nor what impact the project will have on the population is provided,” the EDO said in a submission to the mine assessment process.

Shenhua’s plan involves first attempting to encourage the animals to “naturally move away” from the area that will be cleared. If that does not work, they would be put in bags and moved manually.

On Friday, the court ruled that the commission was not obliged to come to a definitive decision on the likely success or failure of Shenhua’s plan for the koalas, Higginson said. It merely needed to consider the plans.

“It was a case that was really trying to test the outer parameters of those laws in light of the fact that we really are talking about a situation in which there was quite clear evidence that there was a high risk of the local population becoming extinct in the event that the translocation failed,” she said.

“Basically the Planning and Assessment Commission was putting a lot of emphasis on the translocation program without any proper finding of whether it would be successful or not,” Higginson said.

Heather Ranclaud, a local beef and egg farmer and spokeswoman for the landcare group, said the ruling had not resolved the matter.

“Despite this court judgment, a big question mark remains over China Shenhua’s plans to protect koalas in what is known as the koala capital of the world.”

Ranclaud said the group was considering whether to appeal against the decision.

The mine’s future is in doubt after revelations the company did not apply for a mining licence when it was expected to.

Shenhua Watermark Coal declined to comment on Friday’s ruling.