SANDPOINT, Idaho (AP) - A federal judge has rejected a lawsuit by a northern Idaho group that wants to stop a highway project along the shore of Lake Pend Oreille that would route high-speed traffic away from downtown Sandpoint.

U.S. District Judge Edward Lodge ruled Thursday against the North Idaho Community Action Network's claims that the Federal Highway Administration acted arbitrarily and capriciously when it approved the Sand Creek Byway project.

Barbara Babic, spokeswoman for the Idaho Transportation Department, said the ruling is a key step for those who want to build the bypass.

"This is the big lawsuit," she told the Bonner County Daily Bee. "This is the, 'You did not follow the environmental process' lawsuit."

Liz Sedler, executive director of the action network, said the decision will be appealed.

"We respectfully disagree with the judge's ruling and we anticipate taking it to the 9th Circuit on appeal," she said.

The group filed the lawsuit in 2005 after federal highway officials approved the project. The group is also taking part in a lawsuit challenging a final permit issued in October by the U.S. Army Corps of Engineers to allow the Transportation Department to begin work.

The $70 million byway on U.S. 95 is part of a series of huge construction projects in northern Idaho's lake country that are designed to improve traffic safety.

The byway is opposed by environmentalists who worry it will destroy the fragile creek through downtown and be a blight on Sandpoint's scenic waterfront.

In the lawsuit rejected Thursday, the action network had argued that federal officials had violated federal review standards by not requiring a more comprehensive environmental impact statement.

The group also argued that federal officials did not consider alternative routes, and failed to consider possible effects the byway could have on wetlands and protected wildlife species such as bald eagles.

Lodge ruled a previous environmental impact statement and an environmental assessment were adequate.

Sandpoint, 90 miles northeast of Spokane, Wash., is on the north shore of 37-mile-long Lake Pend Oreille and is home to Schweitzer Mountain Ski area.

U.S. 95 is the main north-south highway in Idaho and is heavily used by trucks, tourists and local residents. The road cuts through the middle of Sandpoint, creating traffic jams for much of the year.

The 2.1-mile Sand Creek Byway would include a new bridge across Sand Creek. It would follow railroad tracks along the east side of the creek until it would reconnect with U.S. 95 and U.S. 2 just north of the existing bridge over Sand Creek.