Chile's government rejected an $8-billion US proposal to dam Patagonian rivers to meet the country's growing energy demands, handing a victory to environmentalists who praised Tuesday's ruling as a landmark moment.

A ministerial commission rejected the HidroAysen plan, which would have tamed two of the world's wildest rivers and built more than 1,600 kilometres of power lines to supply energy to central Chile.

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A 2011 file photo shows parliamentary opposition members in Chile holding up a placard in protest against a HidroAysen hydro-power dam project. Opponents said it would ruin pristine Patagonian valleys, and the government on Tuesday scrapped the proposal. (Eliseo Fernandez/Reuters)

After a three-hour meeting, Chile's ministers of agriculture, energy, mining, economy and health voted unanimously to reject the project. The committee "decided to side with complaints presented by the community," Environment Minister Pablo Badenier told reporters. "As of now, the hydroelectric project has been rejected."

The project would have built five dams on the Baker and Pascua rivers in Aysen, a mostly roadless region of southern Patagonia where rainfall is nearly constant and rivers plunge from Andean glaciers to the Pacific Ocean through green valleys and fjords.

Patricio Rodrigo, executive secretary of the Patagonia Defence Council, called the decision "the greatest triumph of the environmental movement in Chile."

Strapped for energy

It "marks a turning point, where an empowered public demands to be heard and to participate in the decisions that affect their environment and their lives," Rodrigo said.

Chile is strapped for energy, but most Chileans opposed HidroAysen, and protests against it at times turned violent.

With its energy-intensive mining industry demanding more power, experts say Chile must triple its current 16,000-megawatt capacity in just 15 years, despite having no domestic oil or natural gas resources. The dams were planned to generate a total of 2,750 megawatts, almost a third of central Chile's current needs, within 12 years.

Before she was elected last year, President Michelle Bachelet had said the HidroAysen plan was not viable. She announced last month that she instead would tackle Chile's energy crunch by building up alternative energy sources and terminals for liquefied natural gas.

The HidroAysen venture is 51 per cent owned by European energy generator Endesa and 49 per cent owned by the Chilean company Colbun SA. Endesa is a Spanish subsidiary of the Italian energy company Enel SpA.

The company can appeal the decision before an environmental court, and analysts expect a long legal battle.