The Scottish Environment Protection Agency (Sepa) has approved a scheme by Scottish Coal to empty Loch Fitty, near Dunfermline in Fife, to dig up 3.4 million tonnes of coal from underneath its bed.
Sepa's experts initially warned the plan would have a negative impact on people and the water environment. But internal emails show their initial advice was revised to make it more favourable to the development, at the request of senior managers.
Environmental groups and local residents, appalled by the "massively destructive" plan, have appealed to Scottish ministers to intervene and review the plan. If that fails, they are threatening to complain to the European Commission.
"This looks like a desperate attempt by Scottish Coal to generate extra profits by ripping out every last ounce of coal from beneath Fife that it can," said Lang Banks, the new director of WWF Scotland.
"It would be wrong to drain Loch Fitty to extract additional coal, at the cost of causing environmental damage and depriving the local community of its amenity value. Scottish ministers must review this proposal with a matter of urgency."
Scottish Coal, part of the Scottish Resources Group, is the UK's largest producer of opencast coal. It operates nine large mine sites in Scotland from East Ayrshire to Fife.
Existing mines are running out of coal, so it is anxious to extend them or dig new sites to meet the demand for coal to burn in power stations like Longannet on the Firth of Forth. Scottish Coal was given planning permission by Fife Council late in 2011 to extend the St Ninians opencast mine. In order to do that it needs to drain Loch Fitty, which requires permission from Sepa.
Emails and draft reports released under freedom of information law show Sepa's senior managers rejected the advice of their own expert group against the plan.
The advice needed to be rewritten "to consider deliverability", wrote Sepa's head of eastern operations, Lin Bunten, on October 1, 2012.
"All documents will be revised as they raise a significant level of uncertainty which needs to be clarified to allow the determination to be made."
Ian Cowan, a former Sepa lawyer who now represents the local Kingseat Community Council in fighting the extension, accused Sepa of making "a complete U-turn".
The emptying of Loch Fitty patently failed the legal tests to ensure sustainable development, he argued."How could anyone think that six more years of opencast coal mining makes any contribution at all to sustainable development, let alone a contribution big enough to outweigh the destruction of an entire loch?
"The fact that Scotland's environmental regulator has come up with this fantasy is truly shocking."
Forbes Stuart, who chairs the council, says Sepa did not seek the views of residents. He said: "They have let us down and misrepresented our village."
Kingseat had already endured 14 years of opencast mining and most of its 360 households opposed the draining of Loch Fitty, he said. "If this goes ahead, Scottish Coal will have been a blight on the landscape of this village for 20 years."
Sepa insisted no recommendation had been overturned at the request of senior managers. "Draft documents have undergone a number of changes as our assessment has developed," said Sepa's area manager, Colin Anderson. "Determining the application has involved Sepa carefully assessing and considering every aspect of the proposal, including the potential environmental impacts, both positive and negative."
Sepa said it had met with the community council and conducted a "consultation and advertising exercise". Scottish Coal's plan provided the best prospect of returning the polluted loch to good ecological health, it argued.
Scottish Coal promised Loch Fitty would be restored seven-and-a-half years after operations start. Extending its St Ninians mine would give continued employment to 140 people and was supported by many in the local community, it claimed.
A company spokesman said: "We are confident that our proposals will deliver a range of long-term benefits for the water environment and the wider area."
Loch Fitty, left, is due to become part of the "Scottish World" project, which involves landform artist Charles Jencks in re-landscaping the St Ninians mine.
The aim, says Scottish Coal, is "to create a magnificent sculpted landscape park representing the continents of the world, celebrating Scotland's diaspora".
The Scottish Government said it is considering a request for a review of the Sepa decision.