The state government is working to overturn an agreement to conserve land with threatened and faunal species at Westbury in order to build its new Northern prison.
The government more than a decade ago received federal funding from the Private Forest Reserve Program to establish land at Brushy Creek as a conservation covenants.
That land parcel was last year identified as the site on which to build the new prison.
Attorney-General Elise Archer at budget estimates on Wednesday said there were ongoing discussions between the federal and state government departments with regards to the status of the land.
"It's important that we not only comply with our own approvals process, but that which the Commonwealth has a say over as well," she said.
"Part of the original agreement was to protect that land because there was thought to be a particular threatened vegetative community on that site and subsequent assessment has shown that vegetative community is not actually there," he said.
"Part of the discussions that are ongoing with the Commonwealth do include identification of potential offsets.
"There has been some sites that have been identified in the same bioregion which would contain similar values to those which we believe were originally thought to be the reason for protecting the Crown land at Marney's Hill."
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After the hearing, Greens environment spokeswoman Rosalie Woodruff questioned the assessment which claimed the particular threatened vegetative species did not exist.
She said any offset would come at a cost of more than 70 hectares of diminishing habitat for species like the wedge-tailed eagle, masked owl, grey goshawk and other rare fauna.
The 2020-21 budget contained $7.8 million for the prison project for the 2021-22 and $32.6 million and $66.5 million for the following years.
Labor's Jen Butler said this had been reduced to $1.5 million for 2021-22 and $4.8 million and $18.3 million for the subsequent years.
"That represents an $82.3 million reduction on spending on the prison project over the next three years," she said.
Ms Archer said the $270 million price-tag on the prison still remained.
"The updated cashflows for the Northern prison will not impact the planned rollout of the project - or the commencement of construction and the time frames to submit the associated planning application," she said.
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