Premier Daniel Andrews will take the "unprecedented" and "unconventional" step of spending up to $50 million to buy a beleaguered timber mill in Heyfield in a bid to save jobs in Gippsland.

Australian Sustainable Hardwoods, which processes timber from the plant, has rejected supply offers from the state-owned VicForests because they were deemed too low and would force the mill that employs 250 people to close.

The timber mill at Heyfield. Credit:Mal Fairclough

The supply offer of 80,000 cubic metres for the next financial year, and 60,000 more per annum for the following two years, was made because VicForests said there was dwindling supply in the state's forests.

ASH wanted nearly double the offer that was on the table.