A delay to the decision, which has already been pushed back once, could further prolong a build-up of crude in the US Midwest, which doesn't have enough pipelines to ship growing Canadian output to Gulf Coast refineries for use around the United States.

"While we still hope to make a decision by the end of the year, we are first and foremost committed to a thorough, transparent and rigorous review process," said the US official, who Reuters did not name.

"So we're carefully reviewing all of the information we've received, including the many comments from the public, and will make a decision only after we have weighed all of the facts," the official added.

Analysts and officials said despite a potential delay, it looks like the United States will ultimately approve the project. The decision falls to the US State department because the pipeline crosses international borders.

Clearview Energy Partners analyst Kevin Book said the State Department was taking time to ensure its decision making on the $7 billion project was meticulous and protected from lawsuits.

"Everything that we are aware of suggests the State Department is moving toward 'yes' very openly, albeit slowly," said Book, adding that a decision against the pipeline could prove costly for the Obama administration ahead of next year’s elections.

"A 'no' decision in January could be a big problem in November if oil prices are above $100 a barrel, " he said.

Canadian officials have not heard any recent change in tone from the State Department that would suggest a shift in thinking, Joe Oliver, Canada's natural resources minister, said in an earlier interview.

Still, further delays would roil an already edgy oil market, Credit Suisse energy research head Jan Stuart told Reuters.

"It's all about timing, not about the route. The market had moved on the understanding that this thing was going to be online in the second half of 2013," Stuart said.

"If you are suddenly mucking around with the timing ... the market has to move again."

Approval for the pipeline has been pending since late 2008 and the project could face many legal and regulatory hurdles that could delay it.

Environmental groups sued the US government in federal court on Tuesday challenging claims in the State Department's environmental report saying spills on the line were unlikely.

Opposition is crystallising in Nebraska where the pipe would cross the aquifer and the Sand Hills region, home to whooping cranes and other endangered species.

Pipeline opponents say the fuel is potentially corrosive to pipelines, while others fear potential damage to a major US fresh water aquifer, Reuters reported.

Some 1200 opponents were arrested in front of the White House this summer, and more protests were expected next month.

Published: 26 October 2011 02:19 GMT | Last updated: 26 October 2011 02:20 GMT