The Environmental Protection Agency, in an unusual move, revoked a key permit for one of the largest proposed mountaintop-removal coal-mining projects in Appalachia, drawing cheers from environmentalists and protests from business groups worried their projects could be next.

The decision to revoke the permit for Arch Coal Inc.'s Spruce Mine No. 1 in West Virginia's rural Logan County marks the first time the EPA has withdrawn a water permit for a mining project that had previously been issued.

It's...