The NSW Rural Fire Service says explosives training by Defence personnel caused the State Mine fire, which has ripped through more than 47,000 hectares of the Blue Mountains.

Defence, however, has not accepted blame and says it continues to cooperate fully with state authorities investigating the fire.

Earlier today an RFS spokesman said the fire had started on the Marrangaroo Training Area last week as a result of an exercise using live ordnance.

Commissioner Shane Fitzsimmons later said he had spoken to the Defence Department about the report's findings.

"I've got to tell you it was from very public comments early on that they were open and said, 'we may have started this and we'll work with the authorities'. That's what they're doing," he told a press conference.

"I don't think anyone's shying away from how this fire started. What we did do was an investigation to confirm the speculation that was around early on last Wednesday.

"Our investigation was simply a gathering of the facts. Where did the fire start, how did it start, end of story."

Local businesses have told the ABC a plume of smoke appeared over the Defence facility in the early afternoon on the day the blaze began.

Some have reported hearing explosions after the fire began, and one local RFS member has told the ABC firefighters struggled to enter the site and fight the fire immediately because of concerns about live shells.

The State Mine fire has destroyed at least three homes and threatened many others since it began on October 16.

There was no total fire ban that day in Lithgow, where the temperature hit a maximum of 23 degrees Celsius.

A total fire ban was declared the next day - the day fires in the Blue Mountains and across NSW destroyed and damaged more than 200 homes.

Blue Mountains Mayor 'not happy'

Blue Mountains Mayor Mark Greenhill says he is "not happy" that Defence appears to have caused the Lithgow blaze.

"I would have hoped that on a day like that, which was a dry day, a hot day with the winds, that the Australian military would have known it wasn't a good time to be igniting," he said.

"I understand that it wasn't a total fire ban but, gosh, it wasn't a good day to be doing that and while the Springwood fire was a separate fire, that fire itself has caused great concern to my community.

"It's done damage to my community and it just shouldn't have happened. Not happy at all."

Lithgow City Councillor Wayne McAndrew says more information is needed about how the fire got out of control.

"This needs to be looked at and questions need to be answered," he said.

Defence 'aware' of RFS views

On Wednesday night, Defence released the following statement:

"Defence is aware the NSW Rural Fire Service is of the view that the cause of the State Mine fire near Lithgow was as a result of a Defence live ordnance exercise at Marangaroo Training Area. "As Defence stated in a media release on Saturday, October 19, 2013, Defence personnel were conducting an explosive ordnance training activity at Marangaroo on October 16, the same day the State Mine fire started. "Defence continues to cooperate fully with NSW authorities investigating the State Mine fire, including NSW Police Force investigators who will prepare a report for the coroner outlining the full circumstances surrounding the fire. "Defence is also conducting an inquiry into the circumstances surrounding this explosive ordnance training activity. "Our thoughts are with everyone currently affected by the fires burning in NSW, particularly those who have had properties lost or damaged in the State Mine fire."

NSW Premier urges public to remember good work by military

NSW Premier Barry O'Farrell says he hopes public remembers the work the good military is doing to combat the fires.

"I can't add much more to what the Rural Fire Service and police have said," he said.

"But I also want to ensure that this doesn't detract from the efforts that Defence have made over the past week in assisting the state's emergency service battle these fires."

The Marrangaroo site was used as an ammunition storage depot for a number of decades from World War II, but now is used as a training facility where Defence personnel practice disposing of explosives.