Dow Jones Newswires' Mark Peters reports:

King Coal may have been knocked to the canvas, but it hasn't been knocked out yet.

A federal appeals court Friday overturned a lower court ruling restricting the controversial coal mining practice known as mountaintop removal. A three-judge panel of the U.S. Fourth Circuit Court of Appeals in Virginia reversed the two-year-old decision by Judge Robert Chambers of the Southern District of West Virginia, who had ruled the U.S. Army Corp of Engineers had violated the Clean Water Act in issuing permits for four coal mines.

The case involves a mining practice in which companies shear off the tops of mountains to gain access to seams of coal. Mining companies and environmental groups have been battling in court over where the waste material is dumped and the effects of this type of mining on streams and rivers.

The case has been watched closely by producers in the region, such as Massey Energy Co., that rely on mountaintop removal for some of their output.

Friday's ruling reverses the injunction against four Army Corps of Engineers permits for subsidiaries of Massey Energy. Judge Chambers' 2007 ruling had effectively tied up several additional permit applications from coal producers.

The court's ruling confirmed the Corps of Engineers' authority to decide on the permits needed to dump the materials. The Corps' job is to balance both the Clean Water Act and other federal rules requiring a balance between the environment and the nation's need for energy.

"The Corps is attempting to harmonize the two statutes' goals: ensuring that mining operations can proceed while maintaining the highest level of water quality possible outside of the mining area," wrote Judge Roger Gregory in the majority opinion.

The fight over the future of coal, which provides about half the electricity in the U.S., has intensified in recent months. Many states are reconsidering building new coal-fired plants, given concern about the environmental impacts of mining and burning coal. That's one reason Congress is offering billions of dollars to research ways to make coal-fired plants operate more cleanly, which many environmentalists oppose.

With Friday's court ruling, the battle over coal's future is set to get even hotter.