Aquila Resources has received the green light from the state government to develop Anketell Port as part of its $6 billion iron ore project.
Environment Minister Bill Marmion gave the nod to the proposed development, in which Aquila holds a 50 per cent stake.
The federal government will now consider whether to also approve the project.
The coal producer has been moving into iron ore and developed proposals for two key mines in the Pilbara region.
Integral to the project is the proposed port development at Anketell.
"The approval provides for the staged expansion of the multi-user, deepwater port to a nominal iron ore export capacity of 350 million tonnes per annum, subject to other non-environmental approvals," Aquila chairman Tony Poli said in a statement.
The planned development of the port is crucial to Aquila securing the majority of the $3 billion in funding it needs for its iron ore project.
Meanwhile, Aquila has settled its lengthy legal battle with Brazilian miner Vale over the sale of the Perth-based company's 24.5 per cent stake in the Belvedere coal project in Queensland.
Mr Poli said the companies had signed binding agreements to settle all legal proceedings and disputes relating to Belvedere for $20 million, paving the way for Vale to exercise its option to buy Aquila's stake for $150 million.
The pair have been locked in a legal battle since 2010 about the valuation used for Aquila's interest in Belvedere.
Mr Poli said Vale was expected to wrap up its option to buy Aquila's stake during the March quarter.
Aquila's shares were steady at $3.12 at 1303 AEDT.
