Oil explorer Cairn Energy said its Indian subsidiary had received a key approval for a pipeline critical to exploiting its Rajasthan fields but still awaits full government clearance for the plan.

Cairn said on Tuesday that permission from the Indian government to use land for laying the pipeline meant it was on course to begin production from its giant Mangala field in Rajasthan in 2009.

The Edinburgh-based company's shares rose on the news, trading up 3.14 percent at 1842 pence at 8:58 a.m., outperforming a 1.24 percent rise in the DJ Stoxx European oil and gas sector index.

Shares in Cairn India, in which Cairn Energy retains a 69 percent interest, rose 0.8 percent to 158 rupees.

After some uncertainty as to how the development will proceed, the key elements of the project seem to be coming into line, Tony Alves at KBC Peel Hunt said in a research note.

Cairn is still awaiting a crucial government approval to allow the cost of the $780 million (385 million pound) pipeline to be recoverable from field revenues, as other project costs are, but Cairn India Chief Executive Rahul Dhir said he was confident.

We hope to get that resolved relatively soon, Dhir told a conference call with reporters.

Some investors had hoped Cairn would announce full approval of the pipeline plan after analysts said the company had indicated in private meetings in early August that a deal was likely just weeks away.

Earlier this year, Cairn shares weakened on fears the government opposed the construction of a pipeline and wanted Cairn to build a refinery to process the Mangala crude.

Cairn added that profit after tax was $1.52 billion in the first six months of the year, thanks to a $1.54 billion one-off gain related to the initial public offering of Cairn India.

The company made a loss of $5.8 million in the same period last year.

Cairn was transformed by the discovery of billions of barrels of oil at its Rajasthan fields in 2004, propelling it from obscurity to the FTSE 100 index of leading UK companies.

The company floated its Indian assets on the Bombay Stock Exchange and India's National Stock Exchange last year, distributing the proceeds to shareholders and retaining some cash to refocus on exploration.

India