Western Australia's second largest timber mill has been stripped of a major native timber supply contract after it was exposed by a whistleblower on-selling more than 100 tonnes of marri logs overseas.

Key points: An investigation into the mill was sparked by information from a whisteblower

An investigation into the mill was sparked by information from a whisteblower Under its contract the mill must locally process all logs from state-owned forests

Under its contract the mill must locally process all logs from state-owned forests The Forest Products Commission does not believe contract breaches are widespread

Under its contract with the Forest Products Commission (FPC), Nannup Timber Processing is required to process all logs from state-owned native forests in WA.

However an FPC investigation triggered by a whistleblower has found that in the first six months of this year, the Nannup mill on-sold at least 165 tonnes of state-sourced marri logs for export.

WA Forestry Minister Dave Kelly described it as a serious breach of contract.

"We expect everybody within the timber industry to play by the rules, and in this case the company breached their contract terms and so they've lost the contract," Mr Kelly said.

Minister Dave Kelly described the breach of contract as serious. ( Supplied: WA Forest Alliance )

The contractual requirement to locally process timber from state-owned native forests is aimed at protecting WA timber industry jobs and ensuring logs are processed into value-added products like furniture and flooring.

"We're about protecting the West Australian timber industry and local jobs," Mr Kelly said.

"So they [Nannup Timber Processing] have now paid a price for doing the wrong thing and I hope that sends a message to others who might think about moving outside their contract requirements."

The mill was found to have on-sold at least 165 tonnes of marri logs. ( Supplied: WA Forest Alliance )

The operators of Nannup Timber Processing declined to interviewed, so it is not known where the logs were sent, for what purpose, or for what price they were sold.

General manager Vince Corlett has previously told the ABC that some state-sourced jarrah logs were inadvertently sent on a shipment to Malaysia as part of a trial to reduce timber waste.

FPC investigation inadequate: WA Forest Alliance

The FPC investigation into the mill was triggered by a series of photographs of native logs being prepared for shipment at Fremantle Port.

Nannup Timber Processing was found to have breached its contract terms. ( ABC News: Jon Daly )

The photographs were taken by people associated with the native forest conservation group, the WA Forest Alliance.

"We're totally dissatisfied of the results of this investigation," WA Forest Alliance convenor Jess Beckerling said.

"It's clear that the FPC's investigation has only looked at the marri. We wanted them to also look at the apparent export of jarrah, and for the investigation to be full and independent."

Jess Beckerling says the FPC investigation only looked at marri. ( ABC News: Jon Daly )

The group is lobbying for an end to the logging of all native forests.

The Forest Industries Federation of WA (FIFWA) said the native timber industry remained an important employer in the region.

"I think it'd be a huge mistake to make a judgement about an industry in its entirety on the basis of one company," said FIFWA's acting chief executive Matt Granger.

The operators of the mill declined to be interviewed. ( ABC News: Jon Daly )

He said the native forest industry was a success story.

"A $220 million contribution annually, in excess of 500 direct jobs. That's enormous for our regional communities, they are the lifeblood of often quite small local communities," he said.

The Forest Products Commission said there was no reason to believe any other WA mill was exporting native forest logs in contravention of its contract.