The Premier, Barry O'Farrell, has accused Julia Gillard of ''caving in to pressure from green groups'' after the Prime Minister walked away from a promise to hand over environmental decision-making to the states.

Mr O'Farrell and the Victorian Premier, Ted Baillieu, told Ms Gillard they were ready to immediately sign a deal to reduce ''green tape'' at a meeting on Thursday also attended by senior business leaders.

"It's clear the Prime Minister caved in" ... NSW Premier Barry O'Farrell. Credit:Alex Ellinghausen

But, as revealed by Fairfax Media, Ms Gillard had already decided to shelve the green-tape deals because the negotiations were resulting in wildly varying arrangements between states and some state approval processes were inadequate.

''It's clear the Prime Minister caved in. She blinked to pressure from the green groups who wrongly characterised this as a watering down of environmental standards,'' Mr O'Farrell said, referring to a campaign by environmentalists and scientists against the proposed handover.