Obama administration rejects Keystone oil pipeline

A group of demonstrators rally against the controversial Keystone XL oil pipeline outside President Barack Obama's fundraiser at the W Hotel in San Francisco, October 25, 2011.

WASHINGTON (Reuters) - The Obama administration on Wednesday rejected the Keystone crude oil pipeline project, a decision welcomed by environmental groups but blasted by the domestic energy industry.

U.S. President Barack Obama said TransCanada's application for the 1,700-mile (2,740-km) pipeline was denied because the State Department did not have enough time to complete the review process.

"This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people," Obama said in a statement.

With environmental groups concerned about carbon emissions from oil sands production, the administration in November delayed a decision on a presidential permit for the project until 2013.

But lawmakers that support the project attached a measure to a tax-cut law passed at the end of last year that set a February deadline for a decision.

(Additional reporting By Timothy Gardner, Jeffrey Jones, Arshad Mohammed; Writing by Ayesha Rascoe; Editing by David Gregorio and Russell Blinch)