Woodside will press ahead with the biggest oil and gas development to be built in Australia in a decade, after sanctioning its $16.5 billion Scarborough project off Western Australia.

In a move that has enraged green groups, Woodside announced it had approved the Scarborough development and the associated upgrade of its Pluto liquefied natural gas facility near Karratha, 1,600km north of Perth.

The decision comes despite a furious, last-ditch bid by environmentalists to stymie the project after the Conservation Council of WA last week launched legal action, claiming the project required assessment under federal law.

That decision also coincided with news that the boards of Woodside and BHP had agreed to merge their petroleum businesses in a $40 billion deal, which will create one of the world's biggest fossil fuel players.

With a price tag of $US12 billion ($16.5 billion), Scarborough is set to be the biggest oil and gas development undertaken in Australia since the end of a $US200 billion ($275 billion) investment splurge 10 years ago.

The project will involve the construction of a 430-kilometre pipeline, linking the Scarborough gas field to the mainland, as well as a second production train at the Pluto LNG processing plant.

At the peak of construction, as many as 3,200 jobs are expected to be created, with first production slated for 2026.

Woodside's chief executive, Meg O'Neill, alluded to the project's importance to the company's future by noting it would provide cashflow and fund future developments for decades.

"Today's decisions set Woodside on a transformative path," Ms O'Neill said in a statement.

"Scarborough will be a significant contributor to Woodside's cashflows, the funding of future developments and new energy products, and shareholder returns.

"This capital-efficient development leverages Woodside's existing infrastructure and our proven expertise in project execution."

Decision flies in face of call to end new fossil fuel projects

However, the decision was condemned by the Australasian Centre for Corporate Responsibility, which contrasted Woodside's actions with the International Energy Association's call for an end to new oil and gas projects.

Dan Gocher, the centre's director of climate and environment, questioned "what part of 'No new fossil fuel projects' doesn't Woodside understand".

Conservation Council of WA executive director Maggie Wood was similarly critical.

Ms Wood also suggested the environmental movement would continue its fight against Scarborough, including on legal grounds.

These have included allegations the development is unlawful because it has not been subject to an assessment under the Environment Protection and Biodiversity Conservation Act. 

"We are, of course, disappointed at this news," Ms Wood said.

"However, this is far from over. The coordinated national campaign against Scarborough gas will continue to apply pressure on this development, its investors and its buyers.

"Scarborough is a disaster for our climate, for our iconic marine life and for globally significant Aboriginal heritage on the Burrup Peninsula.

Ms Wood said the project was the "single-most-polluting fossil fuel development currently proposed in Australia".

"At a time when the world is facing up to the dire need to reduce emissions and prevent irreversible damage to our climate, this project is an insult to ordinary Australians who will bear the brunt of future extreme weather events and climate disasters caused by developments like Scarborough," she said.

Gas 'vital' in transition to clean energy: Woodside

Anticipating the backlash, Ms O'Neill defended the environmental merits of Scarborough, noting the gas field had an exceptionally low carbon content.

She also argued that gas would be vital for the transition away from an energy system underpinned by fossil fuels to one dependent on renewable energy sources, especially in countries such as China and Japan. 

"The Scarborough reservoir contains only around 0.1 per cent carbon dioxide, and Scarborough gas, processed through the efficient and expanded Pluto LNG facility, supports the decarbonisation goals of our customers in Asia," she said.

"Developing Scarborough delivers value for Woodside shareholders and significant, long-term benefits, locally and nationally, including thousands of jobs, taxation revenue and the supply of gas to export and domestic markets for decades to come."

Scarborough 'may be the last of its kind': Analyst

Graeme Bethune, the chief executive of analyst firm EnergyQuest, said the Scarborough project would buttress Woodside's financial position and made strong commercial sense given forecasts of high gas prices for years.

Mr Bethune said the end of gas had been overstated and pointed to the scores of LNG projects on the table in the US, with energy superpower Qatar as evidence of this.

However, he acknowledged the difficulty in Australian companies developing mega oil and gas projects and suggested Scarborough may be the last of its kind in the country.

"At least this gives them one major growth project, whereas the cupboard was looking a little bare previously prior to Scarborough and prior to the BHP deal," Mr Bethune said.

"Any new development like this is significant... it's the biggest oil and gas development in Australia for 10 years."

Premier Mark McGowan welcomed the announcement and said Scarborough was expected to comply with WA's domestic gas reservation policy, under which gas equivalent to 15 per cent of reserves are sold into the domestic market.