Landowners had sought a ban on the Ramu nickel mine's plans but a PNG court refused their application.
The landowners argued the waste dump would have a disastrous impact on the environment and their way of life.
Justice David Cannings agreed there would be a significant environmental impact and said he was not persuaded by the mine's assurance the tailings would not be toxic.
But he refused the application because the government had already approved the dumping.
Justice Cannings also said there would be adverse consequences for the mine and investor confidence if it did not go ahead.
Ramu landowners said they were shocked by the decision, which allows the majority Chinese-owned mine to begin operations.
Their lawyer, Tiffany Nonggor, told Pacific Beat her clients were considering an appeal.
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