* Australia okays coal port dredging near Great Barrier Reef
* Approval key to Adani coal mine plans
* Adani Must still demonstrate financial closure (Adds comment from Adani, state government)
By James Regan
SYDNEY, Dec 22 (Reuters) - Australia approved on Tuesday a controversial expansion of the Abbot Point coal terminal, which environmentalists fear will damage the Great Barrier Reef but supporters say is needed to protect the sector from decline.
The expansion work will require dredging 1.1 million cubic metres of seabed near the Great Barrier Reef Marine Park, which will then be disposed of on land to make way for what will become one of the world's biggest export terminals for coal.
Federal Environment Minister Greg Hunt issued the approval only after reengineering reduced dredging by 97 percent from the original proposal, according to a statement from Hunt's office.
"All dredge material will be placed onshore on existing industrial land," the spokesman said.
The work still requires approval from the Queensland state government, which is awaiting assurances that a giant coal mine owned by Indian conglomerate Adani Enterprises ADEL.N will proceed to the construction phase.
Anthony Lynham, Queensland's development minister, said in a statement Adani still needed to demonstrate financial closure for its project before the port expansion is cleared by the state.
Adani has blamed opposition to its mine for delays in moving the $7 billion project to the construction phase.
In a statement, Adani welcomed the approval, saying the terminal's expansion was integral to the mine's development, which would generate thousands of direct and indirect jobs and $22 billion in state taxes and royalties.
The region around the port is home to dolphins and dugongs, which rely on the seagrass there for food. It is also a habitat for turtles and giant manta rays and is in the path of migrating humpback whales.
"This approval to dredge is not only irresponsible for the reef, it's illogical and it's unnecessary," said Greenpeace campaigner, Shani Tager.
The Abbot Point expansion will raise exports from 50 million tonnes a year to 120 million tonnes, according to information on the project from a Queensland government website.
Coal production is rising in Australia even as many developed countries view the fuel as a sunset business.
Australia's coal exports are forecast to rise to 200 million tonnes this year, second only to Indonesia and twice that of Russia, government data shows.
Advocates for more coal mining in Australia warn India and other foreign buyers will turn to Indonesia and South Africa if coal resources aren't exploited, eliminating economic benefits to Australia and doing nothing to cut emissions.
Adani has argued that its Australian mine is necessary if Indian Prime Minister Narendra Modi is to keep his promise to bring electricity to hundreds of millions of people living off the grid.
A heritage committee of UNESCO, the United Nations cultural agency, said earlier this year the reef's outlook was poor due to threats like pollution and climate change, but it stopped short of listing it as "in danger". urn:newsml:reuters.com:*:nL8N1432D7 (Editing by Christian Schmollinger)