PORTLAND – A state regulatory agency acted legally when it approved a massive residential development around Moosehead Lake, the Maine Supreme Judicial Court ruled Thursday, clearing the way for a project that critics say could spoil the character of the North Woods.

The Land Use Regulation Commission spent four years reviewing and approving the project, which delights some by conserving more than 360,000 acres but worries others with the prospect of sprawling subdivisions.

The plan limits housing development to 16,900 of the 400,000 acres, and supporters say it’s better to have planned development with land set aside for conservation than scattered home construction.

“We feel like the conservation outcomes are fantastic,” said Mike Tetreault, executive director for The Nature Conservancy in Maine, which helped to negotiate the conservation provisions of the plan.

All told, the rezoning for Seattle-based Plum Creek allows 821 house lots and two resorts with more than 1,200 housing units at Big Moose Mountain and Lilly Bay. It was approved in September 2009, nearly five years after the company announced plans to seek the rezoning for nearly 400,000 acres.

Critics said the commission violated its rules by allowing the zoning plan to be amended, and a Superior Court justice agreed that LURC should have reopened the proceedings for further comment.

In its unanimous decision, the Supreme Court said the commission did nothing wrong.

“We conclude that LURC did not violate its procedural rules and did not otherwise err by approving the rezoning petition and concept plan,” Justice Jon Levy wrote.

The commission held public hearings on Plum Creek’s rezoning plan in December 2007 and January 2008. There were 26 parties and nearly 170 witnesses during that phase of the process. More than 400 additional witnesses testified during four full days of hearings.

The commission developed amendments to Plum Creek’s proposal based on the evidence presented at the hearings. Critics said there should have been additional hearings to address the changes.

Environmentalists were divided, with the Natural Resources Council of Maine, the Forest Ecology Network and Restore: The North Woods fighting the proposal in court, while The Nature Conservancy and the Forest Society of Maine supported the plan because of the conservation easements.

Lisa Pohlmann, executive director of the Natural Resources Council of Maine, said she still has concerns about the size and scale of the development. “It remains the largest development plan in the state’s history and there remain many concerns,” she said.

Before any construction can begin, Plum Creek will need additional permits from the commission, as well as customers. A Plum Creek spokeswoman noted that the economic climate has changed substantially since the development was first proposed, in late 2004.

“In terms of any development plans, those are long term in nature, so we will certainly begin to look at those opportunities, but we’ll have to consider the existing marketing conditions,” said Plum Creek spokeswoman Kathy Budinick from her office in Seattle.

First, Plum Creek will close the deal with The Nature Conservancy on the conservation easements, which will be held by the Forest Society of Maine. Plum Creek will continue to own the land, but The Nature Conservancy will raise $10 million for easements that ban development and limit logging.

Attorney General William Schneider said the court’s decision is vindication for the late commission chairman Bart Harvey, who oversaw the proceedings before his death on Oct. 30, 2010, as well as the seven-member panel and hundreds of people who participated in the process.

Harvey “made it his highest priority to ensure the proceeding was transparent and scrupulously fair to all the participants,” Schneider said.