The state government has been forced back to the drawing board after one of its own MPs voted against a compromise on koala protections, negotiated after the Nationals threatened to split from the government over the issue.

Liberal Catherine Cusack on Thursday told the upper house she could not back the bill, which "has zero to do with protecting koalas".

"It is to try to patch up a political disagreement," the Ballina local told the parliament.

"I would dearly love to see that solved, but it is just too costly if it comes at the expense of koalas."

Ms Cusack instead moved an amendment to send the controversial changes to a committee for further scrutiny.

"I apologise to the premier, my party and our coalition partners," she said.

"I hope we can stop yelling at each other, work like adults for our communities and listen to each other and create consensus where there is chaos."

The amendment was backed 19 votes to 18, effectively delaying a vote on the bill until next year.

Premier Gladys Berejiklian immediately sacked Ms Cusack as a parliamentary secretary for her disobedience, which puts in jeopardy a truce on a policy which had threatened to tear apart the NSW coalition.

In September, NSW Nationals leader and deputy premier John Barilaro threatened to blow up the coalition government if concessions weren't made to rural property owners for protection measures over koala habitat.

The Liberals and Nationals appeared to have reached agreement on policy last month, but with the amendment's failure to pass parliament the government will revert to operations under the former environmental planning policies.

Opposition Leader of the Upper House Adam Searle said the outcome is even worse for koalas, and better for property developers.

"The premier's response has now been to say 'well, we'll set the whole koala SEPP (State Environmental Planning Policy) aside and go back to (the previous) SEPP 44', which on any analysis has less protections for koalas," he told reporters on Friday.

Opposition Leader Jodi McKay says that is exactly what John Barilaro wanted.

"The winner here is John Barilaro," she said.

"The premier has kowtowed to him."

In a statement issued late on Thursday, Mr Barilaro and Ms Berejiklian said they would revisit the koala policy next year.

"Our farmers deserve certainty and they do not deserve to be held to ransom by a Greens-controlled inquiry," they said.

Greens MP Cate Faehrmann, who chairs the NSW Upper House Inquiry into Koalas, celebrated Thursday's vote.

"Fair to say the Nats Koala-Killing bill has been killed! Woot!!" she posted on Twitter.

The NSW Farmers association is also celebrating.

It says the bill's failure prompted the government to agree to meet with farmers to develop a new policy - "something NSW Farmers has been requesting from the start".

"This year has demonstrated that one ill-conceived and poorly drafted planning instrument can instantly strip away farmers' property rights and destroy their business," NSW Farmers president James Jackson said in a statement.

Australian Associated Press