The NSW Government has partly renewed the coal exploration licence for the controversial Shenhua Watermark project.

While some exploration will be allowed to continue, the Government says it will not release other parts of the Liverpool Plains for exploration.

Resources Minister Don Harwin said the decision was made after a rigorous assessment.

It comes about a year after Mr Harwin announced a Government buy-back of 51.4 per cent of Shenhua's exploration licence, at a cost of $262 million.

The Government said at the time that it wanted to protect the farming future of the Liverpool Plains, which is suffering under severe drought conditions.

Now, Mr Harwin says “prime agricultural land of black soil plains” is protected from mining exploration.

The deal “struck the right balance between protecting the area's farming future while encouraging investment in the resources sector,” he said.

“We will not release other parts of the Liverpool Plains for exploration.”

The company still needs mining production leases and other approval from the State Government before it can do any mining.

Federal Government sign-off on biodiversity and water management plans would also be required before production begins.

The state’s opposition said it was a “disturbing development” with a “very significant and detrimental impact” likely.

“The water table is all linked, water that serves the Liverpool Plains will also be the water table that the mining company will need to draw on for its mine,” Labor Resources spokesperson Adam Searle said.

“The whole ecosystem in that area is completely linked and it's completely false to suggest that there will be no impact on the Liverpool Plains.”