A US government agency has been urged to reverse a decision to loan $694m to a Hancock Prospecting-led mining project in Western Australia over claims the deal does not comply with US environmental regulations.

A coalition of American environmental groups has written to the US Export-Import Bank, which has approved the loan, stating the Roy Hill iron ore project, which Gina Rinehart’s company is overseeing, fails to meet the “basic requirements” of US environmental standards.

The letter, seen by Guardian Australia, says Roy Hill’s own environmental protection statement (EPS) does not meet stipulations set out by the National Environmental Policy Act, which requires each US federal agency, including the Export-Import Bank, to scrutinise any action they fund that may damage the environment.

The project has failed to analyse the impact of removing 4.8ha of mangrove or the knock-on effect of dredging at Port Hedland in order to allow ships to export the ore, according to the letter.

“The EPS fails to quantify the full extent of, or mitigate, potential impacts to protected marine species such as endangered sea turtles, dugongs and saltwater crocodiles, all of which are known to occur in the project area and are listed under the US Endangered Species Act,” the letter states.

“By not analysing the full range of potential environmental impacts to marine species and habitat, the EPS fails to meet US environmental standards and is inadequate to protect the marine environment or offset losses of habitat or marine species.”

The environmental groups said the US Export-Import Bank should not provide any financing until a proper assessment was made, and should withdraw its backing if the project was found to be harmful to the ecosystem.

The Roy Hill project, situated 115km north of the small town of Newman in the Pilbara, aims to extract 55m tonnes of iron ore a year for the next 20 years.

A 344km rail line will be built to transfer minerals from the open-cut mine to Port Hedland, where dredging work was completed last year to allow the construction of two new deep-water shipping berths.

Barry Fitzgerald, the chief executive of the Roy Hill project, has said construction is making “excellent progress” with the first iron ore shipments expected in 2015.

Hancock is helped in the project by minor joint venture partners Posco, a Korean steel company, Japanese business Marubeni and the China Steel Corporation.

It is attempting to raise about $7bn for the Roy Hill development from commercial banks and export credit agencies, including the US Export-Import Bank.

Last week, the US Export-Import Bank said it had authorised a $694.4m loan to the project, on the understanding that mining and rail equipment will be purchased from US-based companies such as Caterpillar and GE.

“Projects this size can be difficult to finance – that's where Ex-Im comes in,” said Fred Hochberg, the chairman and president of the government-funded bank. “And I am proud that today's action will support 3,400 jobs across the country, many of them at small businesses."

Teri Shore, a program director at the Turtle Island Restoration Network, one of the groups that submitted the letter, told Guardian Australia the environmental assessment of Roy Hill had been “flimsy” and wasn’t adequate to secure the funding.

“Port Hedland is already heavily industrialised, it’s not exactly a pristine area, but at the same time it’s an important part of the WA marine ecosystem,” she said. “There are a number of animals, such as whales and sea turtles, which are migrating, feeding or foraging in the area. They are doing this project without looking at the full impacts.

“The assessment hasn’t been thorough enough, especially for the marine habitat. The dredging impact is going to be massive but it’s not considered in any of the environmental documents given to the bank.

“They’ll be removing mangrove habitat but they don’t know how many animals will be impacted. They’ve done a flimsy job for such a huge project and the financing needs to be frozen until there is a complete review under the US Endangered Species Act. And if the impacts are found to be large, it shouldn’t be funded at all.”

The environmental groups behind the letter – the Center for Biological Diversity, the Turtle Island Restoration Network and Pacific Environment – are already suing the US Export-Import Bank for its funding of development on Curtis Island, near the Great Barrier Reef. Shore said it was “too early” to say whether the funding for the Hancock mine would also trigger legal action.

Hancock Prospecting rejected the assertions of the US environmental groups, pointing to what it described as an extensive approvals process involving several different parties.

"The concerns are completely unfounded,” said Darryl Hockey, general manager of external affairs for the project. "The Roy Hill project has been rigorously scrutinised to by state and federal regulators - as well as international financiers (including the US Export-Import Bank) - and exceeds international environmental management standards."

The WA Environmental Protection Authority, which assessed the project, said the development was “in accordance” with the relevant legislation. The WA government then set a number of conditions, which mention protection of mangroves and coral, but nothing on species such as whales or sea turtles.

A permanent village housing about 4,500 workers has been constructed at the Roy Hill site, with the mine, port and rail connection controlled remotely from Perth.

In 2011, Rinehart’s lawyers told a Sydney court that publication of details of a legal battle over her family trust could “unsettle” backers of Roy Hill.