Demands by green groups for about 520,000 hectares of new reserves in the forests of Tasmania led to the end of peace talks in Hobart on Saturday.
Federal Environment Minister Tony Burke said a "wonderful" opportunity had been missed.
"Now people have to look down the barrel of what is it like without an agreement," he said.
The talks began two years ago. AAP reports the Wilderness Society, Australian Conservation Foundation and Environment Tasmania blamed the Forest Industries Association of Tasmania and sawmillers.
They also immediately signalled they would step up their campaigns against Tasmanian timber products.
AAP says there has been 40 years of conflict in Tasmania's forests.
The ABC reports State Resources Minister Bryan Green said peace is now almost impossible.