WASHINGTON — The State Department's internal watchdog cleared the agency Thursday of any impropriety in its review of a permit for a controversial pipeline that would carry oil produced from Alberta's oilsands to refineries along the Texas Gulf Coast.

In a report released to Congress, the department's inspector general said it found no evidence that State Department employees were improperly influenced by the company asking to build the pipeline, TransCanada Corp. (TSX:TRP), when they selected the third-party contractor to conduct the environmental analysis, as opponents of the project had charged.

The inspector general also concluded that no conflict of interest existed between the contractor, Cardno Entrix, and the State Department, TransCanada and other federal agencies the company had worked for.

Victoria Nuland, a State Department spokeswoman, said Thursday that the report found "the State Department conducted a thorough, rigorous and transparent review of the environmental impact of the proposed project."

TransCanada said in a release that it was pleased with the report's findings.

"When claims made by opponents of Keystone XL were brought forward, we welcomed an independent review by the inspector general's office so that they could be addressed," said CEO Russ Girling.

"At TransCanada, we conduct ourselves in an open, honest, transparent and ethical fashion, and this independent investigation confirms we followed all of the procedures and practices established by the Department of State and other federal agencies."

Two lawmakers, Sen. Bernie Sanders, I-Vt., and Rep. Steve Cohen, D-Tenn., had asked for the internal probe and pressed President Barack Obama to delay any decision on the pipeline until it was complete. But that demand became moot when Obama, at the suggestion of the State Department, rejected the pipeline in January. Republicans had attempted to force his hand to get an approval, and environmentalists had waged protests to block the $7.6-billion project.

The explanation offered by the administration was that there was not enough time under a GOP-ordered deadline to examine the environmental toll of alternative routes that avoided crossing over an aquifer in Nebraska. Besides Nebraska, the pipeline would pass through Montana, South Dakota, Kansas, Oklahoma, and Texas en route to the Gulf. Republicans, however, accused the administration of pandering to environmentalists in an election year.

While the report cleared the department of wrongdoing, opponents of the pipeline and efforts to force its approval in Congress were quick to point out findings that said a lack of expertise and resources at the State Department affected the environmental review. In addition, the inspector general found that neither TransCanada nor the department reviewed Cardno Entrix's conflict of interest statements, an oversight the State Department officials said would be corrected.

"The findings confirm once again why the project should not be rubber stamped for approval, despite efforts by Republicans in Congress to do just that," Sanders said in a statement.

Bill McKibben, the environmentalist who organized the protests against the project, said the report showed the environmental analysis wasn't carried out at "arms-length," but he said if TransCanada or another entity re-applied, the procedures would be improved.

Friends of the Earth, a vocal Keystone XL opponent, said the report revealed many flaws in the process.

"The report reveals that the department failed to follow even its own flawed procedures. It also contains the striking revelation that the contractor Cardno Entrix, which the department entrusted to manage much of the environmental review process, had a previously undisclosed financial relationship with pipeline firm TransCanada," said Damon Moglen, the group's climate and energy director, in a release.

"It's no wonder that the result was a deeply flawed environmental review, and that the department ended up understating the significant risks posed by pipelines that carry dirty and corrosive tar sands oil. The evidence contained in this report must disqualify the State Department's Keystone XL environmental impact statement from being used in any shape or form when future proposed pipelines are reviewed."

But Neil Brown, a spokesman for Sen. Richard Lugar, R-Ind., who is sponsoring a bill to override the president's decision and approve the pipeline, said the report at most says there is room for improvement.

"There is no 'there' there in the report," said Brown. "It doesn't support the conspiracy theories that Keystone opponents freely spread. The point is that the Obama administration has missed the mark on the urgency of job creation and energy security."