New South Wales Greens MP Jeremy Buckingham says the state's environmental watchdog should throw the book at the owners of a Hunter Valley mine, after a dam wall collapsed.

The Environment Protection Authority (EPA) has inspected the dam at the Wambo mine site, near Singleton.

The EPA said up to three million litres of water escaped when the dam wall failed after heavy rain hit the region last week.

Mine owner Peabody Energy is facing fines of up to $1 million, and Mr Buckingham said the company should face the full force of the law.

"The Greens believe the EPA should throw the book at this coal miner for this event," he said.

"Enough is enough they can just routinely trash our environment write it into their bottom line of their business plan as the cost of doing business."

The coal mine will be asked to detail what actions it took to monitor the state of a sediment dam.

It took the company several days to notice the incident, but the EPA said it was notified as soon as the collapse was discovered.

EPA director Gary Davey said the fines could be substantial.

"It can be up to $1 million," he said.

"But we would very much need to look at the factors that led to it - whether the failure could have been anticipated, what actions were taken, and obviously the level of environmental harm.

"All of those things will go into determining the appropriate regulatory response that the EPA makes."

Peabody Energy has released a statement about the incident acknowledging there was an 'unplanned discharge from a small temporary sediment control dam' at its Wambo mine complex.

'The dam was inaccessible during the heavy rain event in the Hunter Valley and the EPA was notified of the incident when it came to the attention of mine staff as soon as the area could safely be inspected.

'Peabody is working closely with the EPA to investigate the release.'