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Gas giant Santos has lost its bid to restart drilling at a multimillion-dollar gas project off the Tiwi Islands.
The full Federal Court on Friday dismissed the company's appeal, upholding an earlier decision that the offshore gas regulator should not have approved drilling in the Barossa gas field, 265 kilometres northwest of Darwin.
Tiwi Islander Dennis Tipakalippa in June launched legal action against Santos, claiming he was not consulted over the company's environmental plan for the Barossa gas field.
The Munupi elder said he feared the project could damage his people's sea country.
Federal Court judge Mordecai Bromberg in September ruled in Mr Tipakalippa's favour, finding the regulator should not have approved the environmental plan.
He ordered for the approval to be set aside and drilling to be stopped, but Santos appealed the decision.
During a hearing last month, Santos argued Justice Bromberg did not properly consider what constituted a "relevant person" who needed to be consulted.
The company's barrister, Christopher Horan KC, said under the regulations a relevant person was someone whose "functions, interests or activities" could be affected by the drilling work.
Mr Horan argued the Tiwi Islands' traditional owners had a connection to sea country that was genuine and real, however it did not constitute the type of legal interest detailed in the legislation.
But Claire Harris KC, representing Mr Tipakalippa, argued that definition was too limited and ignored a person's social, cultural and spiritual interest in an environment.
Ms Harris told the court the Tiwi Islanders had a profound connection to their sea country, which should be understood as a relevant interest under the laws.
The $US3.6 billion ($A5.5 billion) offshore natural gas development was expected to create up to 600 jobs and pipe gas 280km to the Darwin LNG facility when production began in 2025.
The company has previously said the project, which was 43 per cent complete and on schedule before the September court decision, is one of the world's lowest-cost new LNG supply projects.
