An underground gas extraction trial will be allowed to proceed in South Australia's far north, after an Aboriginal group lost its bid to stop the project.

The Adnyamathanha Traditional Lands Association on Tuesday sought a Supreme Court injunction to halt a three-month underground coal gasification (UCG) trial at a former mine site at Leigh Creek.

It argued the traditional owners had not given their consent for the trial to go ahead, and that the necessary statement of environmental objectives was invalid.

But Justice Sam Doyle dismissed the application, clearing the way for contractors to arrive at the site later this week.

UCG, or in situ gasification, involves setting fire to underground coal to extract gas and has been banned in Queensland.

Outside court, Dwayne Coulthard, a traditional owner, said the decision was “a kick in the guts”.

“All South Australians lose and all Australians will lose if development like this continues to be accepted,” he said.

“We definitely felt like we weren’t properly consulted and, even in the discussions that we did have, we didn’t necessarily feel as though we could find common ground.”

Mr Coulthard said the Adnyamathanha people will continue to protest against the three-month trial.

“It’s time to hit the streets and get as many people as possible on our side to say ‘I agree … UCG is not welcome in Leigh Creek’,” he said.

Leigh Creek Energy executive chair Justyn Peters said the company was disappointed the matter had reached the Supreme Court, but pleased with the court’s decision.

“(The decision) confirms that the South Australian government went through a proper process in the licensing process and the public consultation process with us,” he said.

“My major concern was that every day’s delay was going to cost us money and, in reality, that was going to cost us jobs … the last thing I want to do is lay people off.”

Mr Peters said he was “extremely confident” the Adnyamathanha people were properly consulted through a series of meetings and workshops.

Treasurer Rob Lucas said the government had also received a request from ATLA to prohibit Leigh Creek Energy from proceeding with its demonstration plant.

“After thorough deliberation, this morning I have advised both parties that I will not be issuing the direction requested,” he said on Tuesday.

By Kathryn Bermingham