The earlier decision was made when Seadragon's proposal for a licence overlapped with a different project and was deemed to be of lower merit.

Seadragon asked to be given a feasibility licence for a smaller area that didn't include the overlap, but the energy minister knocked it back.

That was on the perceived grounds the licence could not be granted over anything other than the entire proposed area.

But Federal Court Justice Nye Perram rejected that reading of the Offshore Electricity Infrastructure Act and ordered the minister to reconsider the proposal with a correct application of the law.

The act “plainly” allowed the minister to grant the application, he said.

“The power conferred extends to ‘an area’ – any area – which meets those requirements … a reduced area to that sought by an applicant is still ‘an area’,” Justice Perram said.

The proposed Seadragon wind farm was to include up to 150 wind turbines and a network of subsea cables off the coast of Gippsland.

It involved wind turbine generators on fixed foundations installed between 20 and 40km off Ninety Mile Beach between Paradise Beach and McGaurans Beach, on Bass Strait.

A spokeswoman for the minister said he would review the judgment before taking further steps on the application.

“Establishing Australia’s offshore wind industry is a complex but critical step in decarbonising our energy market,” she said.

“Government and industry alike have an interest in regulatory certainty and that is what this process in the Federal Court is about.”

The Seadragon project was due to begin construction in 2028 with an expected operational date of 2030.

Offshore wind forms a large part of Australia's plans to net-zero emissions by 2050.