A dispute over royalties paid by mining giant BHP to the West Australian Government has been settled with a one-off payment of $250 million, most of which will help fund a new maternity hospital in Perth.

Key points: The Government has announced a relocation of King Edward Memorial Hospital

The Government has announced a relocation of King Edward Memorial Hospital Part of the cost will now come from mining giant BHP in a one-off payment

Part of the cost will now come from mining giant BHP in a one-off payment The company was deducting costs related to its Singaporean marketing hubs

The WA Government announced earlier this year an audit had revealed underpayment on iron ore royalties of between $200–300 million.

WA Treasurer Ben Wyatt had said the issue related to BHP's Singaporean marketing hub and what costs could be deducted in relation to its cost.

The company has been locked in talks with the WA Government since the discrepancy came to light.

The royalty dispute centred on deductions BHP had claimed for years on the cost of selling iron ore.

BHP said at the time the deduction was "long-standing" and said it was concerning previously audited and accepted payments were now being revisited.

BHP Minerals Australia president Mike Henry told ABC Radio Perth it was a fair settlement.

"As the State Government has said, there's no indication here, or there's no view here, that there's been an effort to minimise royalty payments.

"It was a genuine issue of technical interpretation of the agreement."

Hospitals and school to benefit

WA Premier Mark McGowan said in a statement that a replacement for Perth's ageing King Edward Memorial Hospital, the city's primary maternity hospital, would be part-funded by $230 million of the one-off payment.

A further $15 million would go to repairs at Hedland Senior High School and $5 million to Newman Hospital in the Pilbara, where BHP is commissioning its $4 billion South Flank mine.

The ageing King Edward Memorial Hospital was built in 1939 and is badly in need of an upgrade. ( Supplied: State Library of Western Australia & 720 ABC Perth: Emma Wynne )

In a statement, the Premier said the settlement resolved the ongoing dispute with BHP.

"I am assured by BHP and its joint venture partners that they did not intentionally seek to minimise royalty payments, and I accept this advice and thank BHP for working to resolve this dispute cooperatively with the state," the statement said.

"I commend [the department] for its work in identifying the royalties dispute and the State Solicitor's Office for its efforts in achieving a good outcome on behalf of the WA taxpayers."

BHP's new South Flank project will replace the production from its Yandi project. ( AAP: BHP )

BHP said in a statement it was pleased the matter had been resolved.

It said it had ceased to claim the royalty deduction in question.

In the statement, BHP Western Australia iron ore asset president Edgar Basto said the firm's priority had been to ensure a "constructive and fair resolution without having to resort to lengthy and costly legal proceedings".

This is not the first time BHP has made a one-off payment to the WA Government — in 2010, BHP and Rio Tinto made a one-off $350 million payment that went towards the new Perth Children's Hospital.

That payment was linked to a change to their state agreement which lifted their royalties from 3.75 per cent to 5.6 per cent of sales revenue.