Hazardous ash from two Government-owned coal-fired power stations is being illegally stockpiled in sheds on south-east Queensland properties in a serious breach of the state's environmental act.

The ABC can reveal Sydney-based firm Coal Reuse, which has exclusive rights to resell coal waste from Stanwell's Tarong and Tarong North power stations near Nanango, has instead stored 1,400 tonnes of hazardous ash in industrial sheds on a property at Gympie and the Brisbane suburb of Pinkenba "for months".

The company has denied the allegations and said it was storing a safe form of the waste.

The contractor is facing a maximum of more than $7 million in fines for breaches of its approval, for conducting an environmentally sensitive activity without an approval, and for the cost of the clean-up.

The company has been issued a warning by the Environment Department asking it to explain why it should not be fined.

The department said Coal Reuse had responded to the pre-enforcement notice and its response was being considered.

The LNP's member for Lockyer, Ian Rickuss, whose constituents alerted him to the issue, said the results of the investigation were disturbing.

"They're breaking all these conditions of their permits … there are a myriad of questions that need to be answered now," he said.

Mr Rickuss said he initially raised concerns through the Queensland Parliament in May, when constituents came to him with concerns about activity at the two Stanwell power stations.

He said Energy Minister Mark Bailey and Environment Minister Steven Miles should have been aware of the breaches earlier.

"No one was reacting. I asked some Questions on Notice and received some fairly bland answers back," Mr Rickuss said.

"If the community understands there's a problem, surely the manager of Stanwell and the manager of the [Department of Environment and Heritage Protection] should also understand there is a problem."

Coal Reuse was awarded the contract to work at Stanwell sites in May 2014 under the then-LNP government.

Mr Rickuss said he did not know if the environmental breaches also occurred under the LNP government.

In a statement, a spokesman for Mr Bailey said he would not comment on the investigation while it was ongoing.

Coal ash expert says product is hazardous

Environmental Justice Australia researcher Dr James Whelan said the finding was shocking.

"This method of disposal is extraordinary and illegal and must be stopped immediately," Dr Whelan said.

"There's a challenge for the Queensland Government to ensure that that happens first and then look into what the health impacts may have been.

"There is no safe of exposure to fine particles. At any level it can cause serious respiratory and cardiovascular health problems.

"To think of large volume, dozens of truck loads of this toxic waste being stored in somewhere like Pinkenba is just shocking."

Hazardous ash from the Tarong North power station, west of Brisbane. ( Google Earth )

Stanwell Corporation denies knowledge of breach

Stanwell Corporation Chief Executive Richard Van Breda issued a statement on Monday which said it was not part of the investigation.

"Stanwell expects all of its suppliers and contractors to strictly comply with all applicable environmental, health and safety laws and regulations," Mr Van Breda said.

"Stanwell would be extremely concerned if Coal Reuse was found to not be complying with its environmental obligations and would take swift and decisive action to address contractor performance.

"Stanwell understands that the investigation by DEHP has not been finalised.

"Stanwell, the owner and operator of the Tarong power stations, is not under investigation by DEHP."

But Mr Rickuss said Stanwell did have an obligation to oversee Coal Reuse.

"Their issues just don't finish at the gate; their chain of responsibility continues on," he said. "That [their response] is head-in-the-sand stuff."

The Environment Department said it had not identified any offences alleged to have been committed by Stanwell at the two power stations or its associated Meandu coal mine.

Ash illegally stored with 'no destination'

The type of ash being stored is called unprocessed cenospheres and consists of corrosive metal particles created when coal is burnt, which can be hazardous to human health if inhaled.

Coal Reuse is contracted to resell the cenospheres from the Tarong and Tarong North power stations to make industrial products such as concrete, paint, and plastics.

The company was also facing a wind-up application in the Brisbane Supreme Court last week, brought on by an unpaid subcontractor from Blackbutt.

That application was withdrawn after legal complications, but a second application was filed on Monday.

The property in Gympie where some of the ash is being stored. ( ABC News )

In a sworn statement filed in the previous application, Coal Reuse executive director Rodney Hudspeth said there were 1,450 tonnes of cenospheres stored at the two properties, which had been building up "for months".

He said the cenospheres in the ash were worth almost US$1.5million and he did have plans to sell the product.

But in its pre-enforcement letter, the Environment Department said: "Coal Reuse is storing coal combustion products at the site with no known destination or user."

The ABC understands the owners of the properties at Gympie and Pinkenba were unaware that Coal Reuse did not have authority to store waste on the sites.

In a statement, Coal Reuse denied the Environment Department allegations and said instead it was storing a safe form of the waste.

"All fly ash which Coal Reuse removes from the Tarong power stations is immediately on-sold," it said.

"The non-hazardous cenospheres which Coal Reuse has removed from the Tarong power stations have been stored in two warehouses ... in readiness to be on-sold to domestic and international customers.

"Coal Reuse does not store fly ash.

"Only non-hazardous cenospheres — classified as non-hazardous by 'Safe Work Australia' — are stored."

A spokesman for Coal Reuse has previously told the ABC the company was having cash flow problems and is undergoing a restructure, but fully intends to continue its contract with Stanwell.

Mr Hudspeth's court statement also reveals the company paid a $1.5-million "performance bond" to Stanwell when it entered into the contract in May 2014.

He said Stanwell had recently called upon $800,000 of that bond.

A spokesman for Stanwell said that was not related to the environmental investigation.