The regulatory body, which by state law could not consider the risk of leaks or potential environmental impacts, voted to approve the project just days after a leak in a separate pipeline - also named 'Keystone' - spilled 5,000 barrels of oil in the nearby state of South Dakota.
The 3-2 decision by the Nebraska Public Service Commission is likely to be challenged in court by environmental activists in the nearly decade-long debate surrounding TransCanada's project linking Canada's Alberta oil sands to refineries in the United States.
The commission's vote does not approve TransCanada's proposed route, but a modified one which could prove more costly and difficult to build. It was not immediately clear whether the corporation would go through with the project as it considers its commercial viability.
In 2015, the Obama administration rejected construction of the pipeline, saying it would detract from America's global leadership on issues related to climate change.
But the Trump administration overturned the decision in March, saying that the pipeline is safer than other methods used to transport oil, and calling its completion 'long overdue.'
The 1,900-kilometer-long pipeline is designed to transport up to 830,000 barrels per day of tar sand oil from Alberta, Canada, to Nebraska, where it would then enter existing pipelines to the Gulf Coast refineries.
The pipeline construction sparked months of protests by Native Americans and activist groups, who say the project could pollute local water supplies.