A South Korean state-run bank has delayed the approval of a loan earmarked for an offshore gas project run by Australian energy company Santos after indigenous Australians argued the project would damage the local environment.

The delay of the loan to South Korean energy group SK E&S, a major investor in the scheme, and the pending court case launched by indigenous activists have cast doubt on the future of the pipeline as environmentalists around the world step up campaigns against fossil fuel development.

Tiwi islanders last month applied for an injunction application in Korean courts that would prevent two Korean government export credit agencies, the Export-Import Bank of Korea (Kexim) and the Korea Trade Insurance Corp (K-Sure), from lending up to $700mn to fund the Barossa project.

They claimed Santos had not consulted them on building a 300km pipeline through the Tiwi sea north of Australia, leading from the offshore Barossa gasfield to a liquefied natural gas processing plant in Darwin.

At a meeting on March 31, a week after the court action was filed, the Kexim board decided to delay its decision on a credit facility for the Barossa project worth $330mn, citing environmental and legal factors.

“The decision has been delayed as we consider many factors comprehensively, including the need for the project, environmental and legal risks and ways to reduce carbon emissions,” Kexim told the Financial Times. “We are not sure when the decision will be made.”

K-Sure said it would “only support projects that meet international environmental standards”.

The court case, which is yet to begin, follows mining group Rio Tinto’s disastrous decision in 2020 to blow up a 46,000-year-old Aboriginal heritage site in Juukan Gorge in Western Australia. That led to the resignation of chief executive Jean-Sébastien Jacques and focused investor attention on the issue of indigenous heritage.

Tiwi traditional owners claimed Santos sent just two emails and made “one unanswered phone call” during the consultation period over the project. They also alleged that Santos and previous owner ConocoPhillips had misled them about the prospect of it going ahead at all.

“Santos people have never come to the Tiwi Islands to speak to us face to face. They did not tell us about any risks,” Francisco Babui, senior Tiwi traditional owner and plaintiff in the case, said in a statement. “By taking the South Korean government to court to stop this gas project, we are protecting our family and our land.”

He said the pipeline would upset the local ecosystem, particularly the habitats of turtles, which have cultural significance to the Tiwi people.

Santos said in a statement it had gone through all the consultation processes required by law.

ConocoPhillips said the company had consulted relevant stakeholders and had “fully complied with regulatory obligations”.

Representative Jang Hye-young, a lawmaker from Korea’s progressive Justice party who is backing the injunction, said Kexim “should withdraw their support for the project, not just withhold its decision, given its negative impact on climate change and its lack of business feasibility”.

The $3.6bn Barossa project has been in train since 2004, but Santos only reached a final investment decision in March last year. SK E&S holds a 37.5 per cent stake in the project, and much of the liquefied natural gas produced from it will be shipped to South Korea.

This article has been amended to reflect the fact that the loan is intended to fund SK E&S’s involvement in the project