Conservationists believe the collapse of a dividing wall at a coal mine in Lithgow is "equivalent to a giant oil spill".

The NSW Environmental Protection Authority (EPA) began investigating the incident yesterday and said at least 150 metres of the Wollangambe River was "showing signs of impact".

The cause for the collapse at the Clarence Colliery is still unknown, as is the overall damage that might be done to the Greater Blue Mountains World Heritage Area, the boundary of which is within two kilometres of the mine.

There have been reports that tonnes of coal fines have emptied into the river as a result of the collapse.

NSW Greens mining spokesman Jeremy Buckingham said he believed the EPA might have cause to instigate legal action.

Centennial Coal shut down operations at the site and implemented emergency protocols, but Keith Muir, the director of the Colong Foundation for Wilderness, said he believed the spill would have done irrevocable damage to the river.

"The whole ecology of the river is changed and poisoned," Mr Muir said.

"The spill is likely to severely impact the ecological and scenic value."

The EPA had been in negotiations with Centennial Coal to lessen the mine's impact upon the Wollongambe River and its surrounding ecological system.

The collapse, however, means it is likely that new projections, goals and punitive measures may have to be taken in order to survey the damage and then to repair it.

Mr Muir said he believed that whatever happens next, "people will be angry" and the river "will look awful".

Centennial Coal said it was working with the relevant agencies on mitigating the environmental effects.

"There was an environmental incident at Clarence Colliery involving the overflow of material from a holding cell in the reject emplacement area," the company said in a statement.

"Our immediate priority is to minimise any impact to the environment. Establishing how and why this incident has occurred will be part of an extensive investigation."