The court ruled 5-4 that regulators may have misread the Clean Water Act when they blocked two Michigan property owners from developing a shopping mall and condominiums on wetlands.
Specifically, the condominiums would have been located a mile away from Lake St. Clair in Macomb County and the shopping mall built on property 20 miles away from the lake.
The justices, however, did not determine whether government wetlands protections extend miles away from waterways.
Chief Justice John Roberts said the decision -- the first environmental case for the Supreme Court's newest members -- was so confusing that "lower courts and regulated entities will now have to feel their way on a case-by-case basis," reported the Associated Press.
The majority of justices said lower courts would have to reconsider whether areas that contain ditches and drains qualify as wetlands.
The court also said Monday it will hear arguments in the fall on a second Bush administration appeal on lower court decisions in two states that overturn a federal ban on the practice opponents call partial-birth abortions.
The pair of cases the high court will review are from the 8th U.S. Circuit Court of Appeals in St. Louis and the 9th U.S. Circuit Court of Appeals in San Francisco.
Congress voted in 2003 to prohibit the type of abortion that usually occurs in the second or third trimester in which the fetus is partially removed from the womb and its skull punctured or crushed.
The law was challenged on behalf of physicians, who could face up to two years in prison for performing the procedure.
In another decision, the Supreme Court said a victim's emergency call to 911 can be admitted as evidence, but crime scene statements to a police officer must face cross-examination.
And the justices refused to temporarily stop part of the Medicare prescription drug program, the federal health insurance program for the elderly and disabled, while the court decides whether to hear state challenges to funding part of the law.
The high court also said the funding fight belongs in lower courts, not the Supreme Court.