SYDNEY (AFP, REUTERS) - A dispute over protection measures for Australia's endangered koalas threatened to topple the government of the country's biggest state on Thursday (Sept 10).

Angered by a new koala conservation law that it says comes at the expense of farmers in New South Wales (NSW), the rural-based Nationals party withdrew its support for state Premier Gladys Berejiklian's governing Liberals.

The move left Ms Berejiklian with a minority government, lacking the numbers in Parliament to pass legislation as the state battles to recover from the coronavirus crisis.

The uniquely Australian political stoush comes months after unprecedented bush fires destroyed vast swathes of koala habitat, prompting fears for the survival of the beloved tree-dwelling marsupials.

Ms Berejiklian's Liberals have governed in a delicate coalition with the Nationals in NSW, a state that runs from populous coastal areas that include Sydney to a vast rural outback.

In a statement, the Nationals decried the koala Bill passed last December as "a blunt instrument to make city-centric law makers feel good about themselves", claiming it prevents farmers from clearing their own land.

State Deputy Premier John Barilaro of the Nationals said his rural-focused party would no longer support government legislation unless changes were made to the koala habitat protection policy.

The policy unfairly limits the way rural land owners can manage their land, he said.

The Nationals plan to introduce a Bill next week to repeal the conservation policy. Barilaro maintained his party supported conservation and wanted to see the population double.

"We are not anti-koala," he said.

Berejiklian gave Barilaro and other National members of the state Cabinet until Friday morning to decide whether they wished to stay in her Cabinet or quit the coalition.

"They cannot do both," Berejiklian said in a statement, threatening to swear in a new ministry.

The Sydney Morning Herald newspaper has called the dispute "koala war".

The Liberal Party and the Nationals have a decades-old partnership in both state and federal politics which sees power shared across Cabinet positions when in government. The Nationals hold 13 seats in the Lower House while the Liberals hold 35, giving the coalition a majority in the 93-member house.

Environmental groups criticised the stance, saying koalas were on track for extinction in NSW by 2050 without urgent intervention.

"Wanting to retain the right to kill koalas is an extraordinary hill for the Nationals to want to die on, but here we are," Nature Conservation Council chief executive officer Chris Gambian said.

Professor Corey Bradshaw, a global ecology expert at Flinders University, said the legislation that sparked the political fight was "a mere band-aid in the fight to stem further deforestation".

NSW has some of the weakest anti-land clearing laws in Australia, Prof Bradshaw said, with poor enforcement and insufficient penalties exacerbating the problem.

"With increasing mega bush fires, the legacy and persistence of broad-scale deforestation, and weak laws, koalas in New South Wales are effectively doomed," he said.

"Koalas live in and eat trees - you don't need a university degree to predict what will happen when you continue to destroy their already highly degraded habitats."

Ms Berejiklian, who has steered the state through the devastating bush fires and coronavirus pandemic, has yet to comment publicly on the row.