The judge in the capital of Brasilia reversed a decision to suspend contract bidding scheduled for next week and also overturned the suspension of the environmental license for the 11,000-megawatt Belo Monte dam, according to a statement from Brazil's solicitor general.
A spokeswoman for federal prosecutors acting on behalf of dam opponents said the decision was being analyzed and an appeal would be filed, but it was not clear when. She spoke on condition of anonymity in keeping with policy.
Brazil's electricity regulator resumed plans to hold an auction Tuesday to pick a consortium to build and operate the $11 billion dam and sell electricity to the nation, according to a statement from the agency, known as Aneel.
"Avatar" director James Cameron was in Brazil this week to protest the dam, and the decision to delay bidding came Wednesday as he was in a small city near where the dam will be built, accompanied by members of Amazon Watch, a San Francisco-based group that works to protect the rain forest and the indigenous people living there.
In a statement Friday, Amazon Watch said "the battle is not over."
"We are committed to supporting Brazilian indigenous peoples who have vowed to fight to stop the Belo Monte dam," the statement said. "This dam is one of the most destructive projects ever undertaken in the Amazon."
Environmentalists and indigenous groups say Belo Monte would devastate wildlife and the livelihoods of 40,000 people who live in the area to be flooded. They also argue that the energy generated by the dam will largely go to big mining operations, instead of benefiting most Brazilians.
Brazilian President Luiz Inacio Lula da Silva has repeatedly insisted that the dam is essential for Brazil's future energy needs.
Latin America's largest nation has a fragile energy grid that was hit last year by a blackout that darkened much of the nation. Belo Monte would supply 6 percent of the country's electricity needs by 2014, the same year Brazil will host soccer's World Cup and just two years before Rio de Janeiro holds the 2016 Olympics.
Cameron this week called the proposed dam a "pivotal battleground" because it will set the stage for development of more dams.
He took part in a protest against the dam in Brasilia and visited with Indians in the small Amazon city of Altamira near the proposed dam site.
Actress Sigourney Weaver, who starred in "Avatar", accompanied Cameron. Their visit was reminiscent of a 1989 trip by rock star Sting, who protested the same dam alongside Indians in an event that helped persuade international lenders not to finance it. Brazil was shuddering under a heavy foreign debt at the time.
But economically booming Brazil no longer needs money from abroad to build the dam. Silva has said foreign visitors from rich nations shouldn't lecture Brazil about the dam and Amazon deforestation because their countries mowed down their own forests centuries ago.
Brazilian officials also contest environmentalists' estimates of the damage the dam would cause, saying it was approved after years of planning to protect wildlife and people living nearby.
The solicitor general's office said in its statement that the dam's construction will create 18,000 jobs in Para state, one of Brazil's poorest regions.