WASHINGTON—Canada’s lobbying campaign for the Keystone XL pipeline took an unexpected blow Wednesday when a Nebraska judge struck down an industry-friendly law used to determine its path through the state, leaving the project in regulatory limbo.

The district court ruling in Nebraska, epicentre of the staunchest opposition to the Alberta-to-Texas pipeline, emerged as a fresh setback to Ottawa’s overarching economy priority.

The decision came mere minutes before Prime Minister Stephen Harper and President Barack Obama emerged for an all-smiles photo-op at the North America Leaders Summit in Mexico, masking differences over a long-delayed pipeline that stands as far and away the foremost irritant in Canada-U.S. relations.

Ottawa had in recent weeks aggressively ramped up pressure in Washington, demanding a swift yes-or-no answer to the five-year-long Keystone riddle. But White House officials demurred, insisting the State Department’s federal regulatory process would continue apace, with no decision likely until mid-summer.

But Wednesday’s legal developments in Nebraska leave even that timeline in doubt, raising the prospect of further delays of six months or more, pipeline critics said.

The Nebraska court decision was unrelated to the merits of the pipeline, but instead ruled as unconstitutional a new law under which Gov. Jim Heinemann claimed authority for granting pipeline permits. In siding with three local landowners, the court reaffirmed the state’s rigorously regulatory Public Service Commission — not the governor — as the final arbiter of pipelines in Nebraska.

But the net effect of the ruling means “TransCanada has no approved route in Nebraska,” Dave Domina, a lawyer representing the Nebraska landowners, said in a press statement.

“TransCanada is not authorized to condemn the property against Nebraska landowners. The pipeline project is at a standstill in this state.”

Heinemann initially opposed the TransCanada project, citing concern for the environmentally sensitive Ogallala Aquifer. But he later became one of the pipeline’s staunchest backers after TransCanada rerouted a portion of the planned project farther from the watershed, going so far as to establish new law to win state approval.

The ruling sparked euphoria among the state’s hardcore holdouts against the pipeline, led by Jane Kleeb, director of Bold Nebraska.

“Citizens won today. We beat a corrupt bill that Gov. Heinemann and the Nebraska legislature passed in order to pave the way for a foreign corporation to run roughshod over American landowners,” said Kleeb.

“We look forward to the Public Service Commission giving due process to a route that TransCanada will have to now submit to this proper regulatory body in Nebraska. TransCanada learned a hard lesson today: never underestimate the power of family farmers and ranchers protecting their land and water.”

The proposed $5 billion (U.S.) pipeline would run more than 1,600 km from Alberta’s oilsands to Cushing, Okla. A key stretch of more than 325 km would cut through Nebraska.

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TransCanada spokesman Shawn Howard expressed “disappointment” in the Nebraska ruling, saying, “We will now analyze the judgment and decide what next steps may be taken. TransCanada continues to believe strongly in Keystone XL and the benefits it would provide to Americans — thousands of jobs and a secure supply of crude oil from a trusted neighbour in Canada.”

U.S. State Department officials declined to say whether the Nebraska ruling would alter its ongoing review process. The department is in the final stages of gathering input for an all-important recommendation on whether or not Keystone XL is in the national interests of the United States, a decision that is expected to include climate considerations.