The New South Wales government imposed a ban effective from Monday on logging across 176,000 hectares (435,000 acres) of forest on the state's north coast for a Great Koala National Park, hitting six timber mills and about 300 workers.
Without action, it warned that koalas in Australia's most populous state could die off by 2050.
Environmentalists say koala numbers in New South Wales have suffered a dramatic decline in recent decades due to deforestation, drought and bushfires.
"Koalas are at risk of extinction in the wild in NSW -- that's unthinkable. The Great Koala National Park is about turning that around," said New South Wales Premier Chris Minns.
"We've listened carefully and we're making sure workers, businesses and communities are supported every step of the way."
State officials contacted each affected mill, the government said in a statement, vowing to provide payments to cover workers' salaries and business costs while offering free access to training, financial, health and legal services.
The state government first announced the planned koala haven in 2023 but it only stopped logging in 8,400 hectares of forest. The plan was also criticised for not protecting trees immediately.
The Great Koala National Park will provide a refuge to more than 12,000 koalas, 36,000 greater gliders -- nocturnal marsupials with a membrane that lets them glide -- and more than 100 other threatened species, officials said.
The government said it would invest Aus$6 million (US$4 million) to support new tourism and small business opportunities in the area.
It also boosted funding to create the park by Aus$60 million -- in addition to Aus$80 million announced in 2023.
The koala park was hailed by environmentalists but criticised by unions for its impact on logging industry workers.
- 'Pro or anti koala' -
"Koala numbers in NSW crashed by more than half between 2000 and 2020 thanks to deforestation, drought, disease and devastating bushfires," said WWF-Australia chief executive Dermot O'Gorman.
"This park is a chance to turn this tragedy around and eventually lift koalas off the threatened species list by 2050," he added.
"These tall eucalypt forests are a climate refuge for koalas. Australia needs landscape-scale protected area networks like this to prepare for the possibility of 2.5 to three degrees of warming by the end of this century."
When connected with existing national parks, the koala haven would create a 476,000-hectare reserve, the state government said.
Unions said the koala reserve was far larger than the state government's own experts had advised, and it would hit local communities hard.
"This is not about being pro or anti koala," said Tony Callinan, New South Wales secretary of the Australian Workers Union.
"We all want to see koalas thrive. What we're against is the unnecessary destruction of an entire industry and the communities it supports when there is a science-based option that achieves both conservation and a viable timber industry."
Final creation of the koala park will depend on the federal government agreeing to assess it as a carbon project for improved management of native forest, the state said.
Australia's official national koala monitoring programme estimates there are between 95,000 and 238,000 koalas in the eastern states of Queensland, New South Wales and the Australian Capital Territory.
Another 129,000 to 286,000 of the furry marsupials are estimated to be living in Victoria and South Australia.
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