Federal Agriculture Minister Barnaby Joyce has hit out at the Government's decision to give conditional approval for a huge open-cut coal mine near prime agricultural land on the Liverpool Plains in north-western New South Wales.

The project has been labelled as "ridiculous" by the Minister, who is also the Member for New England, and said the mine will affect some of the best agricultural land in Australia.

In a post on Facebook, Mr Joyce said he never supported the Shenhua mine and said the approval was "unfortunate".

"I've done everything in my power to try and stop the mine," he said in the post.

"We brought about further investigations; we had an independent expert scientific review.

"I've said publicly and privately I don't support this mine. I still don't support this mine and that will remain forevermore my view.

"I think the world has gone mad when apparently you cannot build a house at Moore Creek because of White Box grassy woodlands but you can build a super mine in the middle of the Breeza Plains."

Mr Joyce's opposition is paired with criticism from the NSW Farmers Association who said the project has "completely failed the people of the Liverpool Plains".

In 2008, Chinese company Shenhua paid the former state Labor government $300 million for an exploration licence covering 20,000 hectares of the Gunnedah Basin coal field.

The NSW Planning Assessment Commission approved the project subject to several conditions in January this year.

Federal Environment Minister Greg Hunt stalled the assessment process in April and called for more scientific research into the Watermark project's impacts on water resources in the area.

On Wednesday, Mr Hunt approved the project until 2046, subject to an extensive list of conditions.

Shenhua needs to provide the Minister with biodiversity, water and rehabilitation management plans prior to the start of construction.

The company will also be required to provide yearly compliance updates.

Mr Joyce told the ABC the conditional approval gives the Environment Minister the power to halt the project if the modelling is not factual.

"If there's any bright side of this it's that there is a condition ... that if it comes to light that what [Shenhua] said is not the case, as it goes forward in regards to the hydrology, then he has the right to stop the project, so that's something we'll be relying on heavily."

Project faces local opposition, legal challenge

But Mr Joyce said he was still opposed to the project.

"I never supported a mine in the middle of Australia's best farming country," he said.

"It's ridiculous to have a mine in the middle of what is some of the best agricultural land in Australia even if it's not directly on that land."

"Ultimately I think time will prove that it affects the land around it."

Mr Joyce said he did not agree with the granting of the exploration licence in the first place.

"I didn't support the mine then, I don't support the mine now, I think it's in the wrong place, it's not that I don't support coal mines, but there are plenty of other areas they are suited to," Mr Joyce said.

"The issue of course is that you can't make good if you perforate an aquifer in the middle of the flood plain.

"We don't want the Breeza Plains to look like the lower Hunter Valley."

NSW Farmers Association president Fiona Simson has also criticised Mr Hunt's decision.

"I think unfortunately the Environment Minister has completely failed the people of the Liverpool Plains and the agricultural industry of the Liverpool Plains in his approval of the 35 kilometre square Shenhua coal mine."

A legal challenge is already underway into the project's approval by the NSW Planning Assessment Commission (PAC).

The NSW Environmental Defenders Office will argue on behalf of community group Upper Mooki Landcare that the PAC failed to assess whether the mine would place a viable local population of koalas at risk of extinction.

The matter will be heard in the Land and Environment Court in August.

Approval made after community consultation: Hunt

Mr Hunt said the approval decision was made after community consultation.

"Having visited the Liverpool Plains area to listen to concerns of farmers and Indigenous leaders, and having considered hundreds of submissions throughout the approval process, I am well aware of the importance of the productive soils and alluvial aquifers of the Namoi Catchment," he said.

He said the conditions imposed on the Chinese miner will protect water supplies for the black soil plains.

"The conditions I have imposed have placed the black soil plains off limits for mining. The project area is restricted to the ridge country around Mt Watermark," Mr Hunt said.

"There will be no impact on the availability of water for agriculture.

"The conditions I have imposed limit water use to less than 0.09 per cent of available groundwater - that's less than 1/1000th of the resource and less than the amount of water from one agricultural bore.

"If there are any impacts on agricultural water supply ... the mine must immediately provide an alternate water supply to farmers."

Shenhua wants to remove 10 million tonnes of coal from the open-cut operation each year for the next 30 years.