The Western Australian Government says it believes mining company BHP has underpaid iron ore royalties over a period of several years.

Key points: WA Treasurer Ben Wyatt says the issue relates to BHP's Singapore marketing hub

WA Treasurer Ben Wyatt says the issue relates to BHP's Singapore marketing hub The alleged underpayments date from the early 2000s up until 2016

The alleged underpayments date from the early 2000s up until 2016 BHP says it is concerning that previously accepted payments are being revisited

The alleged discrepancy was discovered during an audit, the Government said in a statement.

The Government said it was negotiating with BHP to resolve the matter in the best interests of the state.

WA Treasurer Ben Wyatt said the underpayments amounted to between $200 million and $300 million, and dated back to the early to mid-2000s.

He suggested the audit was "routine".

"It highlighted a potential difference of opinion, well, clearly a difference of opinion about backpay, effectively, of royalties or deductions made under the state agreement acts," Mr Wyatt said.

"That's in a process now of trying to understand and work out a position. Obviously BHP dispute that as a matter of interpretation.

"The state has a fairly firm view and we'll work that out with BHP."

Mr Wyatt said the issue related to BHP's Singapore marketing hub.

"It's not so much the royalty rate, it's what can be deducted and therefore paid in terms of the costs to those Singapore marketing hubs," he said.

"So it's always, as these things tend to be, slightly more complicated."

Royalty claim 'concerning', BHP says

In a statement, BHP said the WA Mines Department had recently questioned a "long-standing and historically accepted deduction of costs" related to iron ore sales.

BHP says it is working with the WA Mines Department to resolve the dispute. ( AAP: BHP Billiton )

"The long-standing deduction has been consistently audited and accepted by the Mines Department as part of BHP WA iron ore royalty calculations," the statement said.

"It is concerning that previously audited and accepted payments to the government are now being revisited, and BHP is working with the Mines Department to resolve this matter."

Mr Wyatt said since the audit in 2016, BHP had been paying what was believed to be the correct royalty amount.