The Australian Energy Market Operator said that ``there are no forecast electricity generation supply shortfalls in Victoria or Tasmania over the Christmas and New Year period as a result of the Basslink Interconnector outage''.

Basslink, a private company, has a contractual obligation to fix the problem within 60-days.

``The government instructed Hydro Tasmania to suspend the proposed sale to the Tamar Valley combined cycle unit pending a review of the very unusual circumstances that we are currently experiencing,'' Energy Minister Matthew Groom said.

Hydro Tasmania has been importing about 40 per cent of its electricity from interstate as the state's dam levels sit around 25 per cent capacity.

 Earlier this month, Hydro Tasmania confirmed it would fire up the Tamar Valley Power Station mid-January - after more than 18 months laying dormant.

EARLIER: Basslink is working to diagnose and repair a fault in its interconnector, about 100 kilometres off the coast in the Bass Strait.

The interconnector provides for the trade of electricity between Tasmania and the mainland electricity market.

The fault is only affecting the electricity component, and the telecommunications cable for internet and phone services continues to operate.

Basslink released a statement on Tuesday morning that there was a fault in the cable on Sunday afternoon.

Investigations are continuing into the cause of the fault.

Company chief executive Malcolm Eccles said the company had begun preparing a team of experts to diagnose and repair the fault, and return the interconnector to service.

“Basslink has been advised that there has been no impact to Tasmanian or Victorian residential or commercial customers to date as a result of this outage,” Mr Eccles said.