The state government is scrambling to attract an alternative waste collector in a bid to avoid up to 400,000 tonnes of recyclable material going to landfill.

More than 30 councils are bracing for the worst this week after SKM founder Giuseppe Italiano told the Herald Sun he was closing the business.

The company has warned up to 400,000 tonnes of waste could end up in landfill per year if it closes its business.

The Municipal Association of Victoria says councils may struggle to find alternatives, given their experience when SKM facilities were shut down earlier this year.

Many shires were forced to send recycling to landfill during the temporary closure, with Port Phillip warning the state government it will be asking it to foot the bill if this happens again.

The SKM site at Laverton. Jason South

The opposition has labelled the situation a "recycling fiasco", but Environment Minister Lilly D’Ambrosio said on Sunday the government had been working with the councils who have contracts with SKM to look at alternatives for managing kerbside recycling collection.

"SKM's ongoing non-compliance is unacceptable and we make no apologies for taking the necessary action to protect the community from dangerous waste stockpiles," she said.

The beleaguered recycling company has been fined and shut down multiple times by the state’s environmental watchdog over breaches of waste management laws.

SKM provides recycling services for more than 30 councils, collecting about half of Victoria's kerbside recyclables.

Transport Intrastructure Minister Jacinta Allan said work to find an alternative recycler had been ongoing.

The national peak body for waste management says Victoria's recycling crisis is likely to get worse as a growing number of councils dump recyclable materials into landfill.

She said SKM could make its own decision about the future of its business.

"However, the government makes no apologies for having, through the Environment Protection Authority, taken the action it needed to take because the advice was that it was engaging in unsafe practices," she said.

“The operator has made some statements. We’ll need to see if they eventuate, but regardless of whether they eventuate, the government has already got a suite of measures on the table that’s designed to attract another industry participant into this area."

Ms Allan said $135 million was being spent to help attract another operator.

However, Municipal Association of Victoria president Coral Ross said there might not be many immediately viable solutions.

Councils struggled to find alternatives when SKM facilities were shut down earlier this year, forcing many shires to redirect recycling to landfill.

"SKM make up about 50 per cent of the kerbside recycling market – the other two are Visy and Polytrade," Ms Ross said.

"We have been working through contingency plans, but it's not clear what capacity our recyclers actually have.

"Some councils may be able to find alternatives, but we can only really go by our recent experience earlier this year, which suggests there’s little capacity.

"The solution will require a partnership between all levels of government and state waste management industries."

With more than 200,000 residents, Brimbank Council in Melbourne’s west is one of the largest councils likely to be affected if SKM pulls the plug on kerbside collection.

Infrastructure and city services director Neil Whiteside said the council had not been informed about any closure and had sought an urgent update from the Metropolitan Waste and Resource Recovery Group.

If required, the council would enact contingency plans. However, Mr Whiteside did not say what those plans entailed.

Port Phillip Council acting mayor Louise Crawford said sending the area’s 200 tonnes of recyclables a week to landfill will be “an absolute last resort”, but conceded it may be necessary.

“We would be incredibly disappointed if this happens as our residents sort their recyclables and will feel let down if they are not processed,” she said.

“Our overwhelming preference is for our kerbside collection recyclables to go to an existing processor, even if this means by long-haul truck.”

Cr Crawford said this may not be achievable if existing players in the market are unable to absorb the extra demand.

If SKM does close, the council expects the state government to reimburse the cost of dumping recyclables in landfill, which ran close to $80,000 when the EPA forced SKM’s Laverton North site to close for several weeks earlier this year.

Opposition spokesman David Davis told AAP the government had not done enough to address the crisis.

‘This whole recycling fiasco is entirely [Premier] Daniel Andrews’ and his government’s making. It is an absolute and total shambles.

“Now we see the predictable catastrophe, the predictable fiasco. It is a circus.”

The Age attempted to reach SKM, Visy and Polytrade for comment.