A controversial $900 million expansion of Queensland's Acland open-cut coal mine is a step closer after receiving federal government approval.

Environment Minister Josh Frydenberg made the announcement on Friday, but the New Hope project is still awaiting state approvals and the outcome of a legal challenge in the Land Court.

The expansion is expected to create 260 construction jobs and guarantee the ongoing employment of hundreds of workers and contractors.

New Hope managing director Shane Stephan said timing of the required state approvals was critical to the future of Acland employees given the current lease was running out of coal.

“Now we have the federal approval – our people’s futures are squarely in the hands of the Queensland state government,” Mr Stephan said.

The Oakey Coal Action Alliance has been fighting stage three of the mine in the Land Court, claiming the expansion will put water, air quality and farming at risk.

New Hope needs the Land Court to rule in its favour before the state can grant mining lease and environmental authority approvals, while an associated water licence is also required.

The federal approval includes 28 conditions, including requirements for water management and environmental offsets.

“I know this project has both its supporters and opponents within the local community, but I am advised with the strict conditions attached we will see mining and agriculture co-exist,” Mr Frydenberg said.