Planning Minister Vickie Chapman said the impact on local businesses and the island's character had also been factors in the decision to refuse the application from Kangaroo Island Plantation Timbers.

Her decision came after a State Planning Commission's Assessment Report found the application to be "finely balanced".

"This was a difficult decision and one I have not made lightly," Ms Chapman said.

"The assessment report was line-ball, however, I have come to the conclusion that the possible long-term and irreparable damage the wharf could cause to the Island is a risk I am not willing to take.

"Key factors included the impact on surrounding businesses, the marine environment, as well as biosecurity risks to neighbouring tourism and aquaculture businesses.

"There were also concerns with the impacts on the road network and how increased truck numbers on the Island would affect the character of the popular tourist destination and home for many."

The timber company's port proposal at Smith Bay was first declared a development of major environmental, social and economic importance in February 2017.

It was expected to move about 12 shipments of plantation timber off the island each year but was also to be made available to other industries and generate about $42 million in annual economic activity.

In October 2019 the company varied the proposal following public consultation, and in December 2020, following a request for further detail, submitted more information in relation to its environmental impact statement.

While in the federal budget this year, the Commonwealth announced $32 million of road funding for Kangaroo Island which the company described as "the final piece of the puzzle" to clear the way for approval of the port facility.

Immediately before the state government's announcement on Monday, the company's shares were placed in a trading halt on the Australian Stock Exchange.

Ms Chapman said she was aware her decision would have an impact on the local timber industry.

"However, I am not satisfied that the impacts identified can be monitored, managed or mitigated to a degree that would warrant development approval," she said.

The minister said she would continue to search for a sustainable solution for the industry on Kangaroo Island and to also find a way to get timber burnt in the major bushfires in early 2020 off the island.

She said the government was exploring all possible options to boost timber supply and meet the current house-building demand.

Australian Associated Press