In explaining his decision yesterday Mr Garrett said the dam would have "serious and irreversible effects" on threatened species - which also include the Australian lungfish and the southern barred frog - and he had no option but to reject it.

By stopping the dam, experts said, Mr Garrett had made the biggest decision by an environment minister in 10 years of national environment laws.

"It's clear to me that the Traveston Dam cannot go ahead without unacceptable impacts on matters of national environment significance," Mr Garrett said.

The surprise decision was roundly supported by groups as diverse as the Greens and the National Party. It was also welcomed warmly by residents of the Mary Valley, 160 kilometres north of Brisbane, who have led a three year-campaign against the project.

The dam was proposed by the Queensland Government to provide 70,000 megalitres of drinking water to the fast gowing population of the state's south-east.

It would have meant hundreds of households in Mary Valley would have been displaced and water flowing to the Mary River, and other areas, cut off.

Professor Angela Arthington, from the Australian Rivers Institute at Griffith University, said the decision was a "triumph" for the environment.

Professor Arthington said the dam development would have destroyed the natural habitat of the endangered cod, lungfish and turtle - none of which would have survived in the dam waters.

The Queensland Government has 10 days to make a submission to Mr Garrett in an attempt to change his mind. But the Premier, Anna Bligh, who previously stated Traveston was critical to the sustainability of the state's south-east, said yesterday she had no option but to accept Mr Garrett's decision. Ms Bligh said she would bring forward plans to build up to four desalination plants to combat water shortages in the Gold Coast and Brisbane areas.

An economic analysis by the Centre for International Economics, commissioned by Mr Garrett, found the economic case for the dam was flawed and water could be sourced for the south-east from a range of other projects at the same cost.

Glenda Pickersgill, president of the Save the Mary River campaign, thanked Mr Garrett for what she said was the "right decision".