"The Ministry of Environment and Forests has given its approval to mine coal from the Mahan coal block in Madhya Pradesh to Essar Energy," the company said in a statement.
Essar Power, a unit of Essar Energy, holds a 50 per cent stake in Mahan Coal Ltd, a joint venture with Hindalco Industries that will mine the block.
The approval is subject to some conditions, the company said. Mahan Coal will have to sign a mining lease agreement with the state before starting operations.
Environmental action group Greenpeace had asked the central government to cancel the allotment of the Mahan block, alleging it had been awarded in 2006 in an opaque manner.
At an estimated peak output of 8.5 million tonnes of coal, the mine will feed the 1,200 MW generation capacity of Essar Energy and a 900 MW project of Hindalco.