VICFORESTS was willing to look at making up a shortfall in timber supply to the Australian Sustainable Hardwoods mill in Heyfield.
The claim came after the mill's owner, the Hermal Group, last week announced it would bring forward its closure, blaming an expected shortage of timber from VicForests.
VicForests acting chief executive Nathan Trushell said it anticipated delivering at least 97 per cent of the requested volume for 2016-17 for the Heyfield mill.
"The under supply would represent around one week's cutting for the mill," he said.
"VicForests was willing to look at making up any under supply during the months of July and August, but were advised today that the mill will not accept any deliveries beyond June 30."
The closure of the mill will begin in August, with about 250 workers to eventually lose their jobs.
Hermal rejected the state government's $20 million offer for the mill, claiming it wasn't a fair commercial offer.
Gippsland MHR Darren Chester held out hope for a solution to keep the mill open, but put the onus on the state government.
"Country people have had a gutful of being told what jobs they can and can't have by city-based Labor and Greens politicians," he said.
"It is not too late for the state Labor government to give Australian Sustainable Hardwoods mill in Heyfield the timber it needs to stay open.
"I remain hopeful the state government and the mill owner, Hermal Group, can negotiate a positive outcome for this world-class and sustainable timber manufacturing facility.
"Any scenario where jobs are lost at the Heyfield mill is unacceptable to the mill workers and local small businesses."
In light of recent reports of greater Leadbeater's possum numbers, Mr Chester said the state government must urgently reduce the buffer zones and increase the available resource to industry.
Eastern Victoria MLC Jeff Bourmann said Heyfield workers were "left holding a bag full of empty promises".
"I cannot understand how, within one year, without fires or other natural disasters, we can have supply for 20 years and now not enough timber for five years supply", the Shooters Fishers and Farmers Party MP said.
"The reason there was a cap of 200 on the exclusion zones for the Leadbeaters possum was so that the exact circumstance currently playing out now could be avoided, yet now we are up to 617 zones at last count" said Mr Bourman.
"Government can fix this; it is within their power to have the timber industry and environmental concerns coexist, yet it isn't happening."
Gippsland East MLA Tim Bull said at a parliamentary inquiry just two weeks ago, VicForests confirmed the amount of timber available to industry had dropped by 60,000 cubic metres per annum because of confirmed possum sightings and projected future possum colony identification, and the possum was being discovered at a rate much higher than ever anticipated by VicForests.
"In 2014 it was stated in the Leadbeater's Possum Advisory Group Technical Report that there are 204,400 hectares of potential habitat found across the range of the Leadbeater's Possum and that only 30 per cent of that area was available for potential timber harvesting," Mr Bull said.
"Surely we can undertake protection and conservation actions in the 70 per cent of range that is not available to the timber industry.
"There are 250 people employed at the Heyfield mill, while the mill's operations support 7000 jobs down the line.
"If this closure goes ahead it will have a further devastating effect on the local economy after the closures of Hazelwood and Carter Holt Harvey.
"The mill's closure will only drive up imports of appearance grade timber from countries with far less oversight that we have when we have the timber," he said.
Hermal Group management was scheduled to meet with workers on Monday afternoon, after the Gippsland Times deadline.