COLUMBIA SC — The S.C. Supreme Court on Friday overturned state approval to dredge Savannah’s harbor for larger ships, saying South Carolina regulators didn’t have the authority to cut a deal with Georgia for the $650 million project.

The Supreme Court’s ruling is a strong rebuke to state regulators and Gov. Nikki Haley, and it further muddies the picture of when the dredging project will go forward. The U.S. Army Corps of Engineers signed off on the project last week and asked Congress to bypass the need for a key environmental permit in South Carolina so the dredging can start.

Congress might not act on the request for some time, but for now, Friday’s Supreme Court decision is a setback for Georgia officials who have sought for nearly two decades to dredge Savannah’s harbor, just across the state line.

Frank Holleman, an attorney representing the environmental groups that brought the suit, said the court’s ruling was “very important” for South Carolina residents concerned about the toll the project would have on wetlands, water quality and wildlife along the lower Savannah River.

“It upholds South Carolina’s rights to protect the environment without the intrusion of this unlawful negotiation,” Holleman said.

The negotiation Holleman referred to follows Haley’s involvement last year in the permit decision that was under review by the S.C. Department of Health and Environmental Control.

In November 2011, DHEC reversed a decision by agency staff that denied a water quality permit needed for the dredging.

Haley had asked the agency board, which she appoints, to review the staff decision after she met with Georgia Gov. Nathan Deal, a fellow Republican. The agency’s board signed off on a settlement – negotiated in a matter of hours with Georgia officials – that DHEC said resolved its concerns about the project’s impact on water quality.

The Supreme Court’s decision, however, said DHEC didn’t have authority to negotiate the agreement.

State law says the Savannah River Maritime Commission is “empowered to negotiate on behalf of the state of South Carolina” on matters involving the lower Savannah River, the court said. DHEC didn’t involve the commission in the agreement it reached with Georgia.

As a result, the court said the staff’s original denial of the permit for dredging is now the final department decision.

“DHEC has not followed the relevant law in issuing its final decision, as the board erroneously believed it had the authority to enter into the agreement,” Chief Justice Jean Toal wrote in the majority opinion.

The court’s decision is no surprise to lawyers and some lawmakers following the case. During a hearing on the case last summer, Toal said DHEC had broken the law when it did not involve the Maritime Commission in the settlement negotiations.

“This is good news and expected news,” said state Sen. Larry Grooms, a Berkeley Republican who also is on the Maritime Commission. “I knew DHEC had overstepped its bounds. I hate we had to take the legal route to tell DHEC what they had done wrong.”

“I think the Supreme Court handed down a strong rebuke to DHEC and the governor.”

Attempts to reach spokespeople for Haley and for Georgia Gov. Deal was unsuccessful. But DHEC issued a statement Friday night saying it would follow the Supreme Court’s order.

“We are very pleased that the court has rendered a decision, and we will abide by it,” agency director Catherine Templeton said.

The Savannah Riverkeeper, the S.C. Coastal Conservation League, the S.C. Wildlife Federation and the Savannah River Maritime Commission challenged the DHEC board’s action.

Georgia’s push to deepen Savannah’s harbor by about five feet has been a point of contention for years because of the project’s potential effect on endangered fish, water quality and rare freshwater wetlands. Hundreds of acres of tidally influenced wetlands would be destroyed by the project. Some studies suggest the project also will reduce oxygen levels in the Savannah River, which is why Georgia officials say they will artificially inject air bubbles into the water. But environmentalists say that is a risky precedent and might not work.

The dispute intensified this year, however, because of concerns the Georgia project would set back efforts to attract larger ships to the port of Charleston, a major competitor for maritime business on the Southeast coast that also wants to deepen its harbor.

Haley has said she never told the DHEC board to approve the Georgia dredging project, but only asked the six-member panel to review the staff decision that denied it.

When the DHEC board signed off on the agreement to approve water quality certification for the project, many state legislators became incensed at the board and Haley. They were concerned Haley had given Georgia a possible leg up on Charleston in the race to deepen its port.

Grooms, who was one of the most vocal critics of the decision, also said he’s not worried about the Corps’ attempt to gain an exemption from South Carolina’s approval of the project and push forward with the project from the federal level. He said the Corps has not asked for an exemption from all necessary permitting requirements.