AGL is behind the plant, known as the Newcastle Gas Storage Facility Project, which was first put on exhibition with the NSW Department of Planning and Infrastructure in June 2011.

Now almost 12 months later, after being referred to the NSW Planning Assessment Commission the project has been approved.

But a department of planning spokesperson said the project still required federal government approval under the Environment Protection and Biodiversity Conservation Act.

While on public exhibition 25 submissions were received in relation to the project with the 14 submissions received from the general public and special interest groups being against the proposal.

The key areas of concerns in the submissions were the impact on Aboriginal heritage, impact on flora and fauna and also the impacts of coal seam gas extraction.

But a NSW Planning Assessment Commission panel said it has issued recommendations to manage any impacts including "translocating" any koalas found on the site and replacing the 15 Earp's gums with 45 new ones.

To be built off Old Punt Road, the site would convert natural gas to liquefied gas and store two weeks supply of gas for the greater Newcastle region.

Included in the state government approval is also the green light for gas pipeline access corridors, an access road and a Hexham receiving station and gas pipeline network connection between it and the plant.

A report by the commission said the plant was an important requirement for the future of gas supply.

"The proposed gas storage facility would provide a significant piece of infrastructure for the supply of gas in NSW," it stated.

"The facility would provide a buffer against potential supply disruptions safeguarding the critical supply of gas for residential, commercial and industrial customers within the state."