An environmental group has succeeded in its Federal Court bid to derail plans for a controversial tailings dam inside the takayna/Tarkine rainforest in Tasmania's north-west.

Following a two-day hearing, Justice Mark Moshinsky found the initial approval by the Morrison government for preliminary work on the dam at MMG's Rosebery heavy metals mine was invalid.

The Bob Brown Foundation argued former Environment minister Sussan Ley's decision to allow for work to commence at the site was not authorised under the Environment Protection and Biodiversity Conservation (EPBC) Act.

Justice Moshinsky told the court Ms Ley, through her delegate, did not properly consider the forest's status as the habitat of the rare Tasmanian masked owl.

"In my view, the delegate did not comply with the obligation to take account of the precautionary principle," Justice Moshinksy said.

"To comply with this obligation, it is necessary for the minister, or in this case the delegate, to consider whether there are threats of serious or irreversible environmental damage.

He said while the minister's delegate identified a number of threats to the owl, they did not go on to make a finding as to whether those threats were "serious or irreversible". 

"In the absence of any discussion or finding about this matter, I infer the delegate failed to consider it," he said.

Veteran environmental campaigner Bob Brown said the decision was "significant".

"This is a huge decision for the environment," he said. 

"It means that wherever there isn't sufficient information to say that species aren't going to be driven closer to extinction by a project, that project should wait until that evidence is available." 

Those arrested deserve compensation: Brown

He said the environmentalists who had been campaigning at the site should now be compensated.

"The Commonwealth should compensate all of the nearly 100 forest defenders who have been arrested peacefully getting in the way of MMG's wrongly-licensed wrecking operations," he said. 

Mr Brown said Labor's Tanya Plibersek, as new Environment Minister, now had a "remarkable opportunity" to "right the terrible wrong of Sussan Ley's failure".

"The nation's environmentalists will be counting on her to apply the law and protect this ancient rainforest and all of its threatened wildlife, trees and ecological communities.

"MMG has options to dispose of its acid mine outside the Tarkine, in particular by pulverising them and returning them as paste fill to the mine spaces below," he said.

Earlier this year, the foundation lost in its bid to halt the preliminary works because the court determined MMG had given an undertaking to protect the masked owl.

The Chinese-owned company agreed to apply a 15-metre exclusion zone to trees suitable for masked owl nesting, with the trees to be marked with tape and their GPS coordinates recorded.

Tasmania's Rosebery mine, which has been operating since the 1930s, produces zinc, copper, and lead concentrates, as well as gold ore.

The mine has two existing tailings dams, but a new one is required for the mine to survive past 2024.

South Marionoak, across the Pieman River from the Rosebery mine, is where MMG has proposed to build the dam, which was to have a footprint of 285 hectares.

Justice Moshinksy will make orders on the next steps for the project in coming days.

MMG said it would not comment until after orders are made.

The Federal Government is also yet to respond.