A gold exploration proposal near Yellowstone National Park faced a significant setback as a judge blamed Montana officials for understating the potential for mining to harm land, water and wildlife.

The ruling released Friday means the Montana Department of Environmental Quality would have to conduct a lengthy environmental review before Lucky Minerals can proceed.

The Vancouver, Canada, company received approval last year to begin searching for gold, copper and other minerals at 23 locations in Emigrant Gulch, a picturesque area of steep mountains and dense forest in south-central Montana's Paradise Valley. It has a long history of small-scale mining.

The results of the exploration work would guide the company's future plans for commercial-scale mining.

Environmental groups sued over the project last year on behalf of local residents, who are concerned mining could reduce tourism and pollute the nearby Yellowstone River.

State Judge Brenda R. Gilbert agreed with the environmentalists that state officials gave too much deference to the company in considering the project and ignored evidence that water supplies could be damaged.

The agency also should have looked more closely at the project's impacts on grizzly bears and wolverines and considered the broader implications if Lucky Minerals expands onto federal lands, Gilbert said.