THE Federal Government says it's taking very seriously reports that a training exercise by the Australian Defence Force was responsible for sparking a massive NSW bushfire.

An investigation by the Rural Fire Service has found explosives training on army land at Marrangaroo on October 16 was responsible for starting the State Mine bushfire.

The Department of Defence says it's aware of the allegations and is conducting its own investigation, and will cooperate fully with NSW authorities.

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The devastating State Mine fire has burnt through more than 46,000 hectares, engulfing an area from Lithgow along the northern edge of the Blue Mountains, threatening homes and lives.

Acting Defence Minister George Brandis says he's spoken to the Acting Chief of the Defence Force, Air Marshal Mark Binskin, about the matter.

"The Australian government and the Australian Defence Force take this issue very seriously and continue to fully cooperate with the New South Wales authorities, including the New South Wales Police, who are investigating the fire," Senator Brandis said in a statement.

The revelations could potentially expose Defence, and taxpayers, to compensation payouts to the Blue Mountains property owners of at least three homes destroyed in the blaze.

Premier Barry O'Farrell last night said: "I haven't seen any detailed report on the issue but it's an issue I certainly intend to raise with the PM."

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News_Rich_Media: Dozens of fire trucks and SES vehicles travel down the M4 motorway towards the bushfires in the Blue Mountains. Video courtesy of news.com.au reader.

An RFS spokeswoman confirmed a joint investigation with Defence had found the State Mine fire started on the Defence range after explosive devices on the range triggered the blaze.

But the RFS stressed that there was no fire ban last Wednesday afternoon so Defence did not breach any ban by holding the training exercise at its Marrangaroo Army Range.

"Investigations have determined the State Mine fire near Lithgow was started as a result of live ordnance exercises on Marangaroo Army Range," a spokeswoman said.

"There was no total fire ban in place."

News_Image_File: Fires at Springwood in the Blue Mountains. Aircrane brings some relief.

The Defence Department was refusing to confirm the finding, saying the investigation was continuing.

A Defence spokeswoman last night said she could not confirm that Defence had caused the fire.

"The investigation is ongoing," she said.

Blue Mountains mayor Mark Greenhill was "not happy at all" about the source of the fire which has destroyed three homes.

"I would have hoped on a day like that which was a dry day, a hot day, with the winds - the Australian military would have known it wasn't a good time to be igniting. The fire has caused great concern to my community," he said.

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