Ministers are set to refuse permission to build what would have been Europe's largest wind farm on the island of Lewis.

It should mark the culmination of a massively controversial four-year, £500m proposal which has caused deep divisions among island residents.

Its developers have three weeks to convince ministers that the construction of 181 turbines would not damage protected environmental sites on the island's vast moorland.

The scheme's proponents described yesterday's news as a "bitter blow" and a "missed opportunity" to revitalise the island's economy.

However, it was greeted with delight by wildlife bodies including the RSPB, which said refusing the application was a "hugely appropriate" decision.

Officials were insisting last night that the final decision had not been taken.

But it emerged later that Lewis Wind Power, a vehicle company formed by energy giants Amec and British Energy to carry forward the proposal, had received an official letter from Colin Imrie, head of the Scottish Government's Energy Consents Unit, warning that the plan was unlikely to receive ministerial approval.

He explained: "We have concluded that the proposal would have significant adverse impact on a site protected by the Wildlife and Habitats Directives."

Lewis Wind Power was given until February 15 to make representations. Last night the company was not giving up hope. A spokesman welcomed the move to make a "swift decision", adding: "We continue a dialogue with Scottish Government officials about our application."

Comhairle nan Eilean Siar (Western Isles Council) overwhelmingly approved the project a year ago. Angus Campbell, its vice-convener, made clear his frustration over the government's position.

He said: "This is a bitter blow for the Western Isles.

"We now know the cost of environmental designations to the Western Isles - 400 construction jobs, 70 jobs at Arnish, 70 jobs associated directly with the wind farm, £6m per annum in community benefit, £4m in rental payments. Are we to become an environmental museum?"

The European Commission has long been aware of the impact on protected sites if the wind farm was approved.

However, Neil Mitchison, European Commission representative, would not confirm reports that the government could face prosecution if it approved the wind farm.

Islanders opposed to the development were delighted. Celebrated Gaelic writer and broadcaster Dr Finlay Macleod, whose Siabost house would have looked out on the turbines, said: "This is the best news possible. It will allow us to get on with renewable energy projects which suit our community, and not those handed down from multi-nationals."

Stuart Housden, RSPB Scotland director, said: "If the decision is confirmed we would welcome it. It sends a very strong message that in meeting our ambitious, and welcome, renewable targets we do not have to sacrifice our most important environmental resources."