The company has conceded that the swamps - natural filters that keep the Georges River supplied with fresh water during drought - will probably be damaged by the mining, which will fracture the bedrock and open up cracks at the surface.

But BHP Billiton said the financial viability of its entire mining operation - which aims to extract $2 billion worth of coal a year for 30 years - would be in doubt if the swamps were left alone.

A further 47 swamps above the mining zone in the Dharawal State Conservation Area near Appin are potentially at risk of draining because of subsidence caused by longwall coalmining, says BHP Billiton's environmental assessment.

The company maintains it can fix the problem by filling in the cracks in sandstone beneath the swamps with resin.

The plan, being considered by the NSW government, is to set back some of its mining areas from big rivers and creeks to reduce damage, in line with the recommendations of a government inquiry into mining effects. But the swamps that feed the rivers will not receive the same treatment.

''As a result of the company's commitment to position longwalls away from major rivers and streams, a significant amount of coal will not be mined in order to reduce the impacts of our operation on local waterways,'' a BHP Billiton spokeswoman said, when asked why the swamps needed to be undermined. ''There is no evidence to support claims that mining impacts from the [project] to streams, tributaries or swamps will result in the drying of rivers or loss of water to the catchment.''

The area is home to the largest collection of upland swamps on mainland Australia. They hold thousands of tonnes of fresh water, nurturing native grasses and banksia trees. They provide habitat for endangered species such as the ground parrot and the giant burrowing frog, says the NSW Department of Environment and Climate Change.

Longwall coalmines, which remove large panels of coal hundreds of metres underground, lead to cracking at the surface and have caused the drying of similar swamps in NSW.

''To claim that preserving this handful of swamps will undermine the viability of the whole project, which covers 220 square kilometres, is laughable,'' said Julie Sheppard of the environment group Rivers SOS.

''They can mine safely under the whole western area [around Appin], so there's no need for them to be mining under the conservation area at all.''