Restarting deep-water drilling could be slow, however, as oil companies will need to comply with the new regulatory regime and demonstrate they can adequately respond to major blowouts before drilling can resume, the department said.
"The oil and gas industry will be operating under tighter rules, stronger oversight, and in a regulatory environment that will remain dynamic as we continue to build on the reforms we have already implemented," Interior Secretary Ken Salazar said in a statement.
Industry cautiously endorsed the announcement, saying that the moratorium would not truly be lifted until permitting in the Gulf resumed at its normal pace.
“Without additional resources and a serious commitment by the government to process and approve permits and other requirements expeditiously, the moratorium will give way to a de facto moratorium,” Jack Gerard, head of the American Petroleum Institute.
“Regulators need to quickly put in place a system that allows companies that show their compliance with new standards to resume operations immediately.”
The Obama administration is lifting the controversial drilling ban as his Democrats prepare for a tough mid-term election fight in November and some lawmakers said it remains to be seen if the announcement was politically motivated.
"They claim their arbitrary, job-killing deepwater ban is being lifted, yet promise only to look at applications to resume drilling and vaguely threaten unknown new regulations in the future," said Doc Hastings, ranking member on the House Natural Resources Committee.
"The question remains, will the Obama Administration actually allow drilling work to resume or is this just pre-election rhetoric? Will the Administration follow through on this announcement, set clear policies, and allow people to return to work?"
The drilling ban drew sharp protests from Gulf state lawmakers and a court challenge from companies who complained the ban cost jobs and stalled an industry with a relatively good record.
While the reopening of the prized deep Gulf of Mexico waters will be good news for drillers like Transocean and explorers like Shell, analysts warn it will take months or years to return to the pace of activity prior to the Macondo disaster on 20 April, according to a Reuters.
Shares of drilling contractors were buoyed by the news, however.
Transocean shares traded in the United States climbed 4% to $64.42, while shares of Diamond Offshore climbed nearly 3% to $68.48 in afternoon trading on the New York Stock Exchange.
New procedures and more rigorous controls laid down by the Interior Department will increase costs and slow development of a promising region expected to help boost US domestic oil production.
Shallow water drillers, who were not subject to the drilling ban, have complained that lengthy delays in permitting since the BP spill amount to a de facto moratorium on all drilling.