XML schema declarations in XML file breaks XSLT transformation

I have an XSD, XML and XSLT file.

(simplified) XML:

<project
xmlns="SYSTEM"
xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
xsi:schemaLocation="SYSTEM schema.xsd">

<property name="name1" value="value1">
<property name="name2" value="value2">
</project>

In my XSLT i need to perform a transformation for every element in <project> using <xsl:for-each tag. But the transformation only works properly when i remove the xmlns, xmlns:xsi and xsi:schemaLocation attributes from <project>. (I of course tested it without these attributes and it works fine.)

This is the faulty result:

<?xml version="1.0" encoding="UTF-8"?>
<project/>

Here's my xslt file:

<?xml version="1.0" encoding="UTF-8"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
    <xsl:output method="xml" version="1.0" encoding="UTF-8" indent="yes"/>
    <xsl:template match="/">
            <project>
            <xsl:for-each select="project/*">
                <property>
                    <xsl:attribute name="name"><xsl:value-of select="@name"/></xsl:attribute>
                    <xsl:attribute name="value"><xsl:value-of select="@value"/></xsl:attribute>
                </property>
            </xsl:for-each>
        </project>
    </xsl:template>
</xsl:stylesheet>

And the top lines of my xsd file:

    <?xml version="1.0"?>
    <xs:schema
    xmlns:xs="http://www.w3.org/2001/XMLSchema"
    xmlns="SYSTEM" xmlns:vc="http://www.w3.org/2007/XMLSchema-versioning"
    targetNamespace="SYSTEM"
    elementFormDefault="qualified"
    vc:minVersion="1.1">

    <xs:element name="project">

Your XML has a default namespace. So your XSLT needs to define it with some prefix. And you need to prepend that namespace prefix when you are referring to any element. I used xmlns:a="SYSTEM" for that.

Please see below.

XSLT

<?xml version='1.0'?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform" xmlns:a="SYSTEM">

<xsl:template match="/">
    <xsl:value-of select="a:project/a:property"/>
</xsl:template>

</xsl:stylesheet>