Norwegian oil giant Equinor has abandoned plans to drill for oil in the Great Australian Bight, declaring the controversial project did not make commercial sense.

The company said on Tuesday it had told federal, South Australian and local authorities it had decided to scrap the $200m project to deepwater drill in the Great Australian Bight Marine Park.

It is the third major oil company to abandon plans to drill in the bight, following BP and Chevron.

“Following a holistic review of its exploration portfolio, Equinor has concluded that the project’s potential is not commercially competitive compared with other exploration opportunities in the company,’’ the company’s country manager for Australia, Jone Stangeland, said in a statement.

The decision is a significant win for environment groups and other opponents of the project, including Indigenous elders and local councils. The proposal sparked protests supported by tens of thousands of people opposed to fossil fuel extraction in a marine wilderness area.

Equinor’s announcement comes shortly after the proposed Stromlo-1 well site, in water more than 2.2km deep and nearly 400km off the South Australian coast, was granted environmental approval by the federal offshore petroleum regulator. The Wilderness Society launched legal action challenging the decision last month, arguing opponents had not been properly consulted.

Peter Owen, the Wilderness Society’s South Australian director, welcomed Equinor’s decision to “responsibly withdraw” from the project.

“It’s been a while coming, but the right decision is the right decision, and we have no doubt that the hundreds of thousands of people that have supported the campaign to fight for the Bight will be both delighted and relieved to hear this news,” he said.

Owen called on the Morrison government to “listen to the people and permanently protect the unique waters of the Great Australian Bight from drilling for good”.

The federal minister for resources, Keith Pitt, said the government was disappointed about Equinor’s decision, but pleased the company had made clear it would still be part of the oil and gas industry in Australia. It said the decision would be “particularly hard for South Australia”.

He said the government remained committed to “encouraging the safe development of Australia’s offshore petroleum resources. “The Bight basin remains one of Australia’s frontier basins and any proposals for new oil and gas fields in this area will be assessed fairly and independently,” he said.

Equinor was granted a petroleum title over areas in the Bight in 2011. In December, it cleared the second of four regulatory hurdles it needed to pass before it could start drilling, when the National Offshore Petroleum Safety and Environmental Management Authority, known as Nopsema, granted its environmental approval.

The company described the decision as an important milestone that followed more than 400 meetings with community and other organisations. Environmentalists, local councils and elders of the traditional owners of the Bight, the Mirning people, denied they had been properly consulted and vowed to continue to fight the project.

Industry body the Australian Petroleum and Production and Exploration Association said the company’s decision to drop the project was disappointing for South Australians, who would have benefited economically, and for the “wider Australian community”, which needed new energy supplies.

Matthew Doman, the association’s chief executive, said: “The proposed exploration activity had been subject to an extreme campaign of false and exaggerated claims that deliberately overstated the risks and ignored the potential benefits.”

Greenpeace Australia Pacific’s chief executive, David Ritter, said the decision was an “incredible win for people power and nature”. He said it followed years of relentless campaigning by coastal communities, Indigenous traditional owners, surfers, the seafood industry, tourism operators and local businesses.

“Never doubt the power and determination of the Australian people,” Ritter said.

Sarah Hanson Young, the Greens environment spokeswoman and a South Australian senator, called on other parties to back Greens’ legislation that would put the Bight forward for world heritage protection.

“Opening a new fossil fuel basin in the middle of our ocean was always madness,” she said. Moving to net zero emissions by 2050 means we must reduce pollution now, not give the green light to new polluting projects.”

Noah Schultz-Byard, South Australian director of the Australia Institute, said polling suggested an overwhelming majority of people would support world heritage listing for the Bight.

Stangeland said Equinor said it still held an offshore exploration permit in Western Australia and would maintain “other ongoing interests and activities in Australia”.