The Bay du Nord project would involve building a floating platform to drill an estimated resource of 300 million barrels of light crude oil in the Atlantic Ocean, about 500 km (310 miles) off the coast of Canada's Newfoundland and Labrador province.
Environmental groups blasted the move, which comes days after a United Nations report warned the world risked climate disaster without severe emissions cuts.
"The decision is tantamount to denying that climate change is real and threatens our very existence," said Julia Levin, program manager at Environmental Defence.
Bay du Nord would be Canada's first remote deepwater project at around 1200 m (4000 ft) deep and has come to symbolize the tension between Canada's climate goals and concerns about energy security in the wake of Russia's invasion of Ukraine.
Prime Minister Justin Trudeau's Liberal government has pledged to cut emissions 40-45% below 2005 levels by 2030, but in recent weeks has been exploring ways to increase energy exports to Europe to displace Russian supplies.
Oil and gas is Canada's highest-polluting sector, accounting for 26% of emissions.
Equinor and partner Cenovus Energy have not yet made a final investment decision on whether to build the project, but the Norwegian firm said it welcomed the ministry's decision.
"We now look forward to progressing this key investment in Canada – which has the potential to produce the lowest carbon oil in the country," Equinor said in a statement.
Canada's Environment Minister Steven Guilbeault laid out 137 conditions that Equinor must meet, including protecting fish habitat and migratory birds.
Shortly before releasing the decision, the government also said it will develop requirements for new oil and gas projects, including Bay du Nord, to achieve net-zero emissions by 2050.
Any potential blowout - an uncontrolled release of oil - from the offshore project would endanger whales, fish and seabirds, said Gretchen Fitzgerald, national programs director for Sierra Club Canada Foundation.
Canada Action, a pro-resource development group, said the oil produced offshore of Newfoundland and Labrador has relatively low carbon intensity, and the project would create many years of jobs.
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