Dubbed the "devastation bill" by its detractors, the text recently adopted by lawmakers would have loosened environmental licensing laws for projects considered "strategic" by the state.

For some permits, all that would have been required is a simple declaration of the company's environmental commitment.

Lula instead reinstated the current strict licensing rules for strategic projects, such as a controversial oil mega-project at the mouth of the Amazon river, but set a one-year deadline for them to be approved or rejected.

His veto also ensures that several Indigenous territories and the Atlantic Forest, which stretches along the east coast, will continue to enjoy special protection, Environment Minister Marina Silva told reporters.

SOS Atlantic Forest, a non-governmental organization that had garnered over a million signatures calling for a veto of the law, hailed Lula's decision as "a victory" for environmental protection.

Greenpeace also praised the leftist president's action on the issue.

But the executive coordinator of APIB, Brazil's largest Indigenous rights group, told AFP he was disappointed that the president had not struck down the entire bill.

Lula's veto must now be ratified by Congress, which is dominated by conservatives.

Lula's environmental credentials are under close scrutiny in the run-up to the annual UN climate summit, which he will host in November in the Amazon city of Belem.

While seeking to take a leadership role on climate change on the global stage, Lula has faced criticism at home for backing drilling in the Equatorial Margin, along the country's northern coast.

He argues that the revenue from the oil field is necessary to finance Brazil's energy transition.

Silva said Lula's objective was to ensure that "the economy does not compete with ecology, but rather they are part of the same equation."

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