* State Dept to report to Obama in "next several months"
* State says open to extending its review of pipeline
* TransCanada says still expecting decision by yr end (Adds details on Nov. 6 protest, paragraphs 16, 17)
By Jeffrey Jones and Andrew Quinn
CALGARY/WASHINGTON, Nov 2 (Reuters) - The decision on the controversial Canada-to-Texas Keystone pipeline could slip into next year, a State Department official acknowledged on Wednesday, a day after President Barack Obama said for the first time that the final decision rests with him.
TransCanada's (TRP.TO) $7 billion Keystone XL pipeline is at the center of a political firestorm with green groups and some landowners along the pipe's route mounting formidable opposition to the project aimed at transporting Canadian oil sands crude to the U.S. Gulf coast.
The State Department has said it would decide by the end of year whether it would approve the pipeline, which falls under its jurisdiction because it crosses the U.S.-Canada border.
But on Tuesday, Obama told a Nebraska television station the department would provide recommendations on the project "in the next several months" and he would decide the fate of the pipeline based on health and economic factors. [ID:nN1E7A021P]
A State Department spokeswoman on Wednesday acknowledged evaluation of the proposal might continue into the new year.
"We'd like to get it done by the end of the year, but if thoroughness demands a little more time nobody has slammed the door on that," State Department spokeswoman Victoria Nuland told a news briefing.
Further delay could roil oil markets. Traders are counting on Keystone's 700,000 barrel-per-day capacity to relieve a build-up of crude in the U.S. Midwest, which doesn't have enough pipelines to ship growing Canadian output to Gulf Coast refineries for use around the United States.
Christine Tezak, an energy policy analyst at Robert W. Baird & Co., said the Obama administration will likely make a decision on the pipeline early next year, if it doesn't wrap up by the process by the end of December.
"Given the persistent controversy, I don't see any upside for the administration to let this drag on another year," Tezak said.
Tezak said ultimately she thinks the pipeline will be approved because of its energy security and job creation benefits.
A source who has had meetings with White House and State Department policy staff also told Reuters that the administration will likely approve the pipeline.
FACTBOX-Keystone XL facts, figures, issues [ID:nN1E7A01Z4]
FACTBOX-State Dept enviro review findings [ID:nN1E77O1WU]
Obama to make decision on Keystone XL [ID:nN1E7A021P]
Calls for probe of Keystone review [ID:nN1E79R0XU]
With an election year looming, the clash over the pipeline has reached a fever pitch, with critics of the pipeline staging sit-ins outside of the White House and Nebraska holding a special legislative session over concerns about the pipeline's route through a significant aquifer.
In response to growing opposition in his state, Republican Governor Dave Heineman reversed an earlier decision and called for the special session that is expected to take several weeks.
Heineman said the purpose of the session was to "find a legal and constitutional solution to the siting of the pipeline within the state."
Environmentalists have made the rejection of the pipeline a top priority and a test of the Obama administration's dedication to green issues.
Kate Colarulli, a Sierra Club campaign director, said more than 6,000 opponents have signed up as of Wednesday to circle the White House on Sunday, exactly one year before the 2012 presidential election, to urge Obama to say no the pipeline.
John Adams, a founder of the Natural Resources Defense Council, said the protest will mark his first visit to the White House since Obama awarded him a Medal of Freedom this year. Obama's decision "will be a key bellwether: did we prioritize the cleaner path or did we endorse the fuel that would sink us deeper into the climate crisis?" he said.
The groups say the pipeline will make the United States dependent on "dirty" oil sands crude and make it difficult for the president to mobilize his environmental base.
But with U.S. unemployment high, Obama would face criticism in next year's election campaign if halts the project. Supporters say the pipeline will create thousands of jobs and ensure a stable source of fuel from a friendly neighbor.
TransCanada said it expected a decision by year's end, noting that the review process was already in its 39th month.
"They've outlined to us that they'll make a decision by year-end, and until we've been told otherwise we'll continue to work toward that direction," spokesman Terry Cunha said.
The project is about a year behind schedule following an extended review process that has included draft and final environmental impact statements and public comment periods.
On Tuesday, TransCanada Chief Executive Russ Girling said another extended delay in the regulatory process would lead oil shippers and refiners to abandon support for the project, rendering it uneconomic to build. [nL4E7M12Q2]
Writing by Ayesha Rascoe, additional reporting by Timothy Gardner; Editing by Russell Blinch and David Gregorio