President Barack Obama has angered green businesses and NGOs by throwing his weight behind a new plan that could see work start on the controversial KeystoneXL tar sands oil pipeline in the next few months, crushing hopes that the administration would permanently block the project.

Pipeline developer TransCanada announced yesterday it will start construction of the southern section of the pipeline, running from Cushing, Oklahoma to Port Arthur, Texas. It will also reapply for permission to construct the most controversial section of the pipeline, which runs through Nebraska and crosses the US-Canada border.

The company said it expects the $2.3bn (£1.5bn) southern section of the pipeline to be in service by mid to late 2013, adding that the project will create about 4,000 jobs.

Earlier this year, president Obama secured plaudits from green businesses and campaigners when he refused to grant the necessary permits to TransCanada. These would allow the company to proceed with the cross-border pipeline, which is designed to transport carbon-intensive oil from Canada’s tar sands to refineries on the Gulf Coast.

However, he stressed that the main reason for rejecting the planning application was a Republican decision to impose a Congressional deadline that did not give officials enough time to complete environmental assessments relating to the pipeline.

The decision prompted fierce criticism of the administration from Republicans, who accused the president of failing to act to curb rising fuel prices and missing a major job creation opportunity.

As a result, the White House yesterday praised TransCanada’s decision to move ahead with the section of the pipeline that does not require presidential approval.

“Moving oil from the midwest to the world-class, state-of-the-art refineries on the Gulf Coast will modernise our infrastructure, create jobs, and encourage American energy production,” said White House Press Secretary Jay Carney in a statement.

The decision prompted an angry response from green groups that accused the administration of tarnishing its environmental record.

“The administration must stop trying to have it both ways,” said Friends of the Earth in a statement. “President Obama cannot expect to protect the climate and to put the country on a path towards 21st-century clean energy, while simultaneously shilling for one of the dirtiest industries on earth.”

The decision comes as the Environmental Protection Agency (EPA) today prepares to face fresh legal action challenging its efforts to regulate greenhouse gas emissions.

Federal judges at the D.C. Court of Appeals will hear the case put forward by the Coalition for Responsible Regulation, a group backed by a number of states and business groups. It has brought together more than 10 separate legal actions challenging the EPA’s understanding of climate science and its right to regulate carbon emissions.

The group is expected to challenge the EPA’s “endangerment finding”, which in 2009 ruled that the agency could regulate greenhouse gas emissions under the Clean Air Act. It is also likely to argue against a series of rules that require vehicles to meet fuel-efficiency standards and force industrial plants to measure their emissions and apply for emission permits.

The case comes just days after the EPA again confirmed that only the largest emitters will have to carry emission permits, a move that the agency said provides further evidence that it is targeting a small number of large firms.