The Federal Treasurer, Wayne Swan, has prohibited China Minmetals from buying the Prominent Hill copper and gold mine from OZ Minerals, in a move that is likely to scupper the Chinese company's $2.6 billion bid for the company.

Mr Swan said this afternoon the Federal Government would not endorse the deal if the $1.15 billion copper and gold mine was included in the transaction, because of national security concerns.

The mine is located in the Woomera Prohibited Area in South Australia - a weapons testing range.

Mr Swan said the Government is willing to consider alternative proposals relating to OZ's other assets and businesses.

But Prominent Hill is OZ's most valuable asset and the Treasurer's ruling that it is too sensitive to be owned by a Chinese state-owned company has left OZ's board frantically searching for alternative options to avoid administration.