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The Chilean government has rejected what would have been the biggest energy project in the country's history.

The HidroAysen project would have seen five huge dams built on two rivers in a beautiful part of Patagonia.

"This project has many aspects that were poorly thought out," said Energy Minister Maximo Pacheco.

Environmentalists celebrated the decision, saying the project would have had a devastating impact on the area's ecosystem.

"These giant dams would have put at risk the wilderness, traditional culture, and local tourism economy of this remarkable region," said Amanda Maxwell, Latin America project director at the Natural Resources' Defence Council.

Thousands of people had protested against the HidroAysen project.

Environment Minister Pablo Badenier said HidroAysen had made insufficient provision for those who would have been displaced, and the quantification of damage to the environment and wildlife were inadequate.

The companies behind the proposal, Spain's Endesa and Chile's Colbun, can appeal against the decision before an environmental court.

"Without HidroAysen, the country is starting to turn its back on hydroelectricity - the only real remedy to the continuing dependence on fossil fuels," said Daniel Fernandez, the CEO of HidroAysen.

He described the move as a lost opportunity for Aysen, one of the most remote and under-developed areas of the country.