NEW YORK (Reuters) - The U.S. federal government has rejected most of a $511 million loan request for the renewal of New York state's Tappan Zee Bridge, dealing a blow to one of governor Andrew Cuomo's most prominent infrastructure projects just weeks ahead of state elections.

The U.S. Environmental Protection Agency said that the $3.9 billion project was ineligible for funds from a federal clean water fund because "construction activities arising from transportation projects do not advance water quality."

The authority rejected $481 million of the requested funding, leaving a hole in the project's finances.

Cuomo has made the bridge a show piece of his program to revive the state's creaking infrastructure and flagging upstate economy. Cuomo hailed the project as a symbol of "New York ingenuity" at a visit by President Obama to the site in May.

The replacement of the bridge, which was built in 1952 as an important Hudson river crossing, was scheduled for completion in 2018. The state secured a federal loan of $1.6 billion through the Department of Transportation last year.

Cuomo's office did not respond to a request for comment. According to local press reports the governor told reporters at a press conference in New Paltz that he intended to appeal the decision. The state has 30 days to appeal the ruling.

The question mark over financing of the bridge could put a spotlight on the credit quality of the state's Thruway Authority - the agency that oversees the Tappan Zee Bridge - if it has to take on debt at higher interest rates.

Ratings agencies Standard & Poor's cut its rating on the Thruway Authority to A in October last year, citing the high level of debt it is taking on in the bridge project.

Cuomo is expected to secure reelection in November but the complication will provide an additional point of attack for his Republican challenger Rob Astorino.

"Slowly but surely, all the myths of the Cuomo administration are being exposed to sunlight," Astorino said in a statement. "Cuomo's administration was constructed on the silt of corruption, intimidation, and secrecy."

Environmental groups, who have criticized the use of clean water funds from the outset, welcomed the EPA's decision.

"We applaud the federal government's decision to reject New York State's ill-conceived attempt to raid clean water funds," the New York Public Interest Research Group said in a statememt. "The Cuomo administration and Thruway Authority need to go back to the drawing board and transparently explain how the state will fund this project."

 

(Reporting by Edward Krudy; editing by Andrew Hay)