* Businesses, miners lament government decision amid power woes
* Legal appeal on the cards for hydropower project
* Environmentalists cheer, Bachelet likely to benefit (Adds context on energy in Chile, details on project, politics)
By Felipe Iturrieta and Alexandra Ulmer
SANTIAGO, June 10 (Reuters) - A special Chilean ministerial committee on Tuesday canceled the massive HidroAysen hydro-power project's permit, after environmentalists protested it would wreck pristine valleys in Chile's wild south.
While the decision is a big blow to the controversial project, it is not deadly. HidroAysen can still tweak the project or take its case to courts, suggesting more bitter legal wrangling over the fate of the 2,750 megawatt project may still be ahead.
Still, the $8 billion-plus project faces a steep uphill battle if it decides to fight on in court.
"Although the project isn't formally dead the litigation strategy has become a lot harder for the company now," said Luis Cordero, law professor at the Universidad de Chile, who estimated a fresh legal battle would yield a final decision in about a year.
The HidroAysen joint venture, made up of leading generators Endesa Chile and partner Colbun, was not immediately available for comment.
Some industry observers said the companies, exhausted by so many legal battles, may tweak the project to make it more environmentally and socially acceptable, before re-submitting it to authorities.
Potential modifications could include changes of ownership or design of the complex, for instance a scaling down to four dams instead of five, said energy analyst Sergio Zapata of Corpgroup.
"This project has many aspects that were poorly thought out," said Energy Minister Maximo Pacheco, at the end of a three-hour meeting to discuss the project.
Anti-HidroAysen protesters outside the ministry building hugged each other and popped champagne when the announcement was made.
Unpopular HidroAysen is a political hot potato for center-left president Michelle Bachelet, who started her term in March.
World No. 1 copper producer Chile is facing an energy crunch just as environmental activists gain more traction in battling what they call excessively large and disruptive power projects.
Rejecting the project will boost moderate Bachelet's green credentials, and likely help her gain support from a key senator from the southern Aysen region who essentially conditioned his support for her reforms on axing HidroAysen.
Insufficient provision had been made for those who would be displaced and the quantification of damage to the environment and wildlife was inadequate, said Environment Minister Pablo Badenier as he announced the decision.
Supporters of the project call the massive complex an environmentally friendly way to meet the Andean country's soaring energy needs.
Power-dependent miners in Chile will be especially dismayed by the decision. Bachelet is eyeing liquefied natural gas (LNG) and renewables to fight the looming power woes.
A series of other energy and mining projects have been blocked due to concerns about damage to water, health, indigenous communities and glaciers in the Andean country.
Experts blast a nebulous regulatory framework for letting projects to sink into legal limbos, sometimes for years, exasperating environmentalists and companies alike. (Additional reporting by Fabian Cambero.; Editing by David Gregorio)