"The Department has determined it needs to undertake an in-depth assessment of potential alternative routes in Nebraska," the State Department said in a media note on Thursday.
"It is reasonable to expect that this process including a public comment period on a supplement to the final [Environmental Impact Statement] consistent with [the National Environmental Policy Act] could be completed as early as the first quarter of 2013," the announcement said.
President Obama immediately expressed his support for the decision. "Because this permit decision could affect the health and safety of the American people as well as the environment, and because a number of concerns have been raised through a public process, we should take the time to ensure that all questions are properly addressed and all the potential impacts are properly understood," the president said in a statement.
For the Obama administration, the move is essentially a means of punting a decision that has been weighing on the White House and Obama's 2012 election campaign for a while.
The 1,700-mile, $7 billion project would bring carbon-heavy tar-sands oil from Alberta, Canada, to refineries on the Gulf Coast.
Protests around the country from pipeline opponents and youth organizers have put Obama in a political bind on the pipeline decision. Most recently, thousands of protesters gathered at the White House on Sunday, saying they would pull their grassroots organizing and donor support should the administration green-light the project.
The reroute tackles concerns from Nebraska residents and lawmakers about the pipeline's proximity to the state's Ogallala aquifer in the Sand Hills area, which supplies drinking water to 1.5 million people.
Proponents of the project questioned the decision, arguing that it was largely political.
"This is about politics and keeping a radical constituency opposed to any and all oil and gas development in the president's camp in November 2012," American Petroleum Institute President and CEO Jack Gerard said in a statement on Thursday.
TransCanada, the company that would build the pipeline, said before Thursday's announcement that a rerouting would effectively kill the project, because the new route would require a new Environmental Impact Statement and a public review that would take months, if not years.
"A delay doesn't make sense," TransCanada spokesman James Millar said in an e-mail on Wednesday. "This has been an exhaustive, 39-month review, the longest review ever for a cross-border crude-oil pipeline in the United States. There is no new information to come forward. There is no reason not to make a decision."
But the State Department, which held hearings along the pipeline's route, said that it needs to take in all the comments it received in those public meetings, including concerns about Nebraska's water supplies, which possibly would have been affected by the pipeline.
Nebraska's two senators cheered the news of the delay-albeit cautiously because the announcement had not been made official yet.
Sen. Mike Johanns, R-Neb., said rerouting the pipeline would allay concerns from within his state. "If we can find a better route, I think some of this controversy will go away, and it will," Johanns said on Thursday in the Capitol. "I'm not opposed to tar sands. I'm not opposed to pipelines. You just picked the wrong route."
Sen. Ben Nelson, D-Neb., who has raised the same concerns about the pipeline's route, wouldn't react specifically to the State Department's plans. But he jokingly said: "I would be pleased if anybody with authority would reroute it."
One of the most outspoken critics of the pipeline, independent Sen. Bernie Sanders of Vermont, is still not satisfied. But he indicated a delay was better than approving it.
"I hope this project is never built," Sanders said on Thursday. "To the degree that the project is delayed, it will give the American people more time to become familiar with the project."
"Once the American people know what the global-warming impacts in terms of greenhouse-gas emissions are, in terms of the dangers to drinkable water in this country, and to the cost of gasoline, this project will never be built," Sanders said.
Environmental activists opposing the project were also cautious in cheering the delay.
"The president should know that nothing that happened today changes our position -- we're unequivocal in our opposition. If this pipeline proposal re-emerges from the review process intact we will use every form of nonviolent civil disobedience to keep it from ever being built," environmental activist Bill McKibben said in a statement.
Environmentalists and other project opponents oppose the pipeline not only because of potential problems along its route, but mainly for the tar-sands oil that it would bring from Canada to the United States. They are concerned about the extraction and production of tar-sands oil, which is much more damaging to the environment and emits more greenhouse gases than the processes for obtaining and processing conventional oil.
Amy Harder contributed to this report.