It would we highly appreciated if somebody could provide some insight on this case.

I have been on a work permit in Canada for last 20 months.I am primarily based out of US and got a work permit to work for the company's client location in Canada in April 2009.This work visa did not needed any LMO at that time.Infact I am not even sure why a work permit was granted in the first place instead of a business visa but the consulate told they grant work visa in these cases.
However I got the renewal of the work permit once in April 2010 at the buffalo canadian consulate office.This time when i went for renewal again at the buffalo office they rejected the application citing no involvement of a Canadian employer in my case.

My question is:Would it be any use applying for an extension of my work permit to CPC Vegerville from within Canada and expecting that they might grant extension as conditions of my employment has not changed during my stay in Canada.

It is not possible to say if extension would be granted as details of the case are not available. It is possible that work permit programs in place at the time of the issuance of the first work permit may no longer exist. The amount of time needed to conduct the inland extension at this point may however be problematic for your ongoing project.

Otherwise, the fact that there is a Canadian client for your employer's services does mean that a work permit is a necessity. The issue in the most recent case to Buffalo may have been a lack of satisfactory documentation.