(Corrects to removes reference to cyanide use in copper extraction in paragraph 9.)

* In lower house, 302 votes against draft law and one in favour

* Rejection of bill puts the project on hold for now

* Canada's Gabriel has been awaiting approval for more than 15 years

By Luiza Ilie

BUCHAREST, June 3 (Reuters) - Romania's lower house of parliament rejected a bill on Tuesday that would have allowed Canada's Gabriel Resources to proceed with plans to set up Europe's biggest open-cast gold mine, putting the project on hold indefinitely.

The bill, which was initially approved by the leftist government of Prime Minister Victor Ponta, drew thousands of anti-mine protesters into the streets across the European Union country last year, prompting the senate to strike it down.

The lower house had the final say, and data it published on Tuesday showed deputies rejected the draft law with 302 votes against and one in favour.

Romania is one of Europe's poorest countries but it is comparatively rich in natural resources, including gas, coal and gold. Tuesday's vote has kicked into the long grass a project the government has said is vital to reviving an ailing mining sector in a Romanian region in dire need of jobs and investment.

Gabriel has been waiting for more than 15 years for approval to use cyanide to mine about 314 tonnes of gold and 1,500 tonnes of silver in the small town of Rosia Montana. The local unit of Gabriel Resources declined to comment on Tuesday.

The project aimed to create four gold quarries over the mine's lifespan on four mountain peaks.

OPPOSITION

The mine has drawn fierce opposition from civil rights and environmental groups which argue it would destroy ancient Roman mine galleries and villages, and could lead to an ecological disaster. Neighbouring Hungary also opposed it.

The company has given assurances that it would use the most advanced safeguards to prevent damage to the environment. But the sight of a nearby tailings pond that is the product of a decades-old industrial project, has been used by protesters to highlight fears about the potential fallout of the gold mine.

State-owned copper miner Cupru Min started that pond in the 1970s under the communist regime when it poured toxic chemicals that result from copper extraction into the village of Geamana, not far from Rosia Montana in Alba county.

As for Gabriel's project, the Romanian parliament also rejected changes to general mining legislation that would have made it easier for the gold mine to start late last year.

One of the company's certificates was revoked in court this year after a local environmental group challenged it. Separately, the country's environment minister was quoted as saying in May his ministry will finance new studies because of uncertainties over the proposed tailings pond.

Parliament's rejection of Tuesday's bill puts the project on hold for now, though it could theoretically be revived if a new bill were brought forward at a later stage. That is unlikely to happen any time soon, with the government gearing up to fight a presidential election in November.

Earlier this year, Gabriel laid off about 80 percent of the workers at its Romanian subsidiary, or nearly 400 people. On a Reuters visit in April, the town's historical centre where the company's offices are located looked deserted, with several pro-mining banners fluttering in the wind.

Gabriel has estimated Romania, which holds a minority stake in the project, would get $5.2 billion in taxes, royalties, services and jobs, or roughly three quarters of overall benefits from the project. That estimate has been challenged by protesters and NGOs who oppose the project.

(Reporting by Luiza Ilie; editing by Matthias Williams and Susan Thomas)