The project aims to build a hydrogen production plant in central Queensland state, which would produce low-emissions fuel destined for the likes of Japan and Singapore.

Although the Australian government has pledged US$40 million for construction, state officials pulled their support on Monday evening citing the spiralling cost.

Climate Change Minister Chris Bowen said Tuesday it was "surprising and disappointing".

"Green hydrogen plays to Australia's unique strengths and we're unapologetic about pursuing an industry that is recognised as having an important role in the future of manufacturing and energy in Australia, and globally," he said in a statement.

It was unclear whether the hydrogen hub could go ahead without state government support.

Bowen said it would be a "commercial decision for the parties involved".

Japan's Iwatani Corporation and Marubeni Corporation are listed as partners alongside Singapore-based asset manager Keppel.

A Queensland state spokesman said the cost of new infrastructure and shipping facilities would have amounted to hundreds of millions of US dollars.

The Australian government wants to build seven "hydrogen hubs" across the country.

Powered by solar panels and wind turbines, these hubs would split water into hydrogen and oxygen through a process called electrolysis.

The so-called "green" hydrogen would then be liquefied and shipped overseas where heavy industries such as steel manufacturing could use it as an environmentally friendly fuel.

Japan, Germany, Singapore and others are hungry for reliable hydrogen fuel supplies.

Despite its promise, green hydrogen production has been plagued by technical headaches and the eye-watering cost of bespoke infrastructure.

Australian utility company Origin Energy pulled out of a planned hydrogen plant in October, saying the global market was "developing more slowly than anticipated".

Mining magnate Andrew Forrest shelved similar plans months earlier.

The International Energy Agency last year noted that "several projects have been cancelled due to uncertainty about demand or regulations, financial hurdles, licencing and permitting issues".