By Jonathan Kaminsky

Dec 19 (Reuters) - The U.S. Environmental Protection Agency issued rules on Friday labeling coal ash, a byproduct of coal-based power production containing toxic materials such as arsenic and lead, as non-hazardous waste.

The label means that states, and not the EPA, will be the primary enforcers of the new rules, which will require the closure of some coal ash holding ponds leaking contaminants into surrounding water.

"This rule is a huge step forward in our effort to protect communities from coal ash storage impoundment failures as well as the improper management and disposal of coal ash in general," said EPA Administrator Gina McCarthy, speaking on a conference call with reporters.

The agency first proposed rules governing coal ash storage in 2010, in the wake of a massive spill at a ruptured holding pond in Tennessee that has cost more than $1 billion to clean up.

Environmental groups expressed disappointment with the long-anticipated rules, saying they did not go far enough in protecting the environment and human health in areas where coal ash is stored. (Reporting by Jonathan Kaminsky; Editing by Cynthia Johnston and Lisa Shumaker)