Barnett told WA Parliament yesterday that business and economic logic dictated that if the price of a product was plummeting, the "normal commercial reaction would be to cut back on supply"

"When we get a very sharp and large fall in the price of 40%, which has been accelerated in the past month or so, I find it a strange policy - indeed, a flawed policy - that the major iron ore producers would be putting more and more product into a declining soft market," he said.

"I think that is a flawed policy and I think it will be a failed policy - no doubt about it."

It comes after Barnett accused the two majors last week of forcing the iron ore price down.

While Barnett acknowledged the rising iron ore volumes and the falling Australian dollar would partially offset the falling price, there would still be a huge dent to state revenue due to royalties.

Barnett compared the current situation to BHP and Rio's attempts to merge their iron ore operations in 2009.

"I do not think it is healthy for the iron ore industry. I do not think it is a good policy for shareholders or for those companies, and it certainly damages Western Australia," he said.

"I support expansion but I do not support flooding a depressed market."

But the Chamber of Minerals and Energy of WA said Pilbara producers were simply meeting global demand.

"Over the past decade iron ore producers in Western Australia have expanded their capacity to meet a growing market," CME CEO Reg Howard-Smith said.

Iron ore royalties account for more than 90% of total WA royalties, rising 33% in the 2013 financial year to $A6.9 billion.

Howard-Smith pointed out that WA was not the only supplier of iron ore, with the government estimating that the state accounted for around 30% of global production.

"Other companies and jurisdictions around the world are pushing to get their product to market," he said.

"If Western Australian producers don't meet the demand in the world market, then other significant players such as Brazil, Russia, China, India and emerging producers in Africa will take advantage.

"This clearly makes iron ore producers in Western Australia price-takers not price-makers."

His comments echo those made by Rio Tinto Iron Ore CEO Andrew Harding last week.

"The whole reason that we're pushing tonnes into the market is to fill a void that is available to us and if we don't fill that void, somebody else will," he told journalists last week.

"There's a harsh reality of a competitive international marketplace is the void that could get created by increasing demand will get filled, so the choice is, who fills it? And it is our choice as the highest margin producer on the planet surface is to fill that and that creates significant value for Rio Tinto shareholders."

Howard-Smith said the increase in supply from the majors would have been no surprise to the government, given it forecast average growth of 6.8% over the next four years.

"Notwithstanding volatile commodity prices, the major challenge facing the Western Australian resources sector is the high cost of doing business," he said.

"Improving our international competitiveness will stimulate further growth and deliver ongoing benefits to the community."