Gas giant Santos has been ordered to pause work on its $4.7 billion off-shore Barossa gas project, after a federal court ruled in favour of traditional owners on the Tiwi Islands, leaving the company warning the Federal Government they need to take action to reduce “uncertainty” for national gas projects.

The legal victory for traditional owners was celebrated as a “huge victory” by opponents of the Barossa project, who said the ruling puts gas companies “on notice”.

“The court ruling is a huge victory and would have global implications for consultation with First Nations people on resource projects,” said Environmental Defenders Office Special Counsel Alina Leikin.

“The decision puts oil and gas companies on notice.

“It sets a new standard about the consultation that companies are required to conduct with First Nations peoples before drilling in the sea. It is also a huge victory for the Munupi Clan and a testament to their strength and dedication in the face of one of the biggest mining companies in the country.”

The courts had convened a special “on country” session which involved traditional songs and dances as evidence in the case.

Federal court justice Mordecai Bromberg ruled on Wednesday that the federal regulator failed to assess whether Santos’ approval application showed it had consulted with all relevant parties, and ruled that the project’s approval was invalid.

Santos will now have to halt its operations on its Barossa project in the Timor Sea north of Darwin.

The gas giant denounced the court decision and said it would file an appeal and asked the Commonwealth to immediately tackle the uncertainty on resource project approvals.

“The decision was disappointing and damaging for investor confidence in Australia,” Santos said in a statement.

“As a result of the decision, the drilling activities will be suspended pending a favourable appeal outcome or the approval of a fresh Environment Plan.

“Given the significance of this decision to us, our international joint venture partners and customers, and the industry more broadly, we consider that it should be reviewed by the Full Federal Court on appeal.”

The company said it appreciated the strong support from its Japanese and Korean joint venture partners “who have in good faith, and on the back of Australia’s historical reputation as a safe and stable investment destination, invested in this project.”

It also warned the government that “project approval uncertainty is a public policy issue that should be urgently addressed by Australian governments to reduce the risk for trade and investment in projects around the country”.

Environmental lawyers representing Munupi clan elder Dennis Tipakalippa had earlier argued in court that the clan was not properly consulted before approval for the project was granted by the National Offshore Petroleum and Safety Environmental Management Authority (NOPSEMA) in February and that the Tiwi Land Council was not given insufficient information about the project.

The court ruled the regulator did fail to assess whether the company showed it had consulted with all relevant parties, as required by law and also found NOPSEMA did not consider some material in the application that it was required to assess.

Mr Tipakalippa told the ABC on Wednesday that a community celebration would be held on the island to mark the decision.

“I had to stand up, especially with the drilling that was going to go ahead,” he said.

“I’m just doing it for my ancestors, and I’m doing it for my future generations, and with this result today, I’m very happy.”

Santos said that it had engaged with the Tiwi Land Council and Northern Land Council about the proposed project and that NOPSEMA accepted the company’s efforts to consult with Tiwi Islanders when it accepted the environmental plan.

Santos added that the Barossa project was already 46 per cent complete and said that drilling was not on the critical path for the project. It also said it held “headroom” in the project cost contingency.

The company owns 50 per cent of the gas project with South Korea’s SK E&S holding a 37.5 per cent stake and Japan’s JERA at 12.5 per cent.