The federal environment department is working with the Northern Territory to investigate claims of illegal land clearing for cotton growing.
The ABC this week published images from remote parts of the Northern Territory suggesting land has been cleared for cotton farming before permits were granted.
Since the ban on cotton growing in the NT was lifted in 2018, environmental and Indigenous groups have raised concerns the industry - which has potentially massive benefits for the national economy - is cutting corners when it comes to environmental protection.
Last year, the NT government reduced approval times for land clearing permits to boost investment.
A spokeswoman for the federal environment department told AAP it was working with the NT government to determine whether land clearing activities complied with federal laws as well as the relevant territory legislation.
"Any activity that is likely to have a significant impact on a matter of national environmental significance requires approval under Australia's national environmental laws, the Environment Protection and Biodiversity Conservation Act, before it can proceed," the spokeswoman said.
"Substantial penalties may apply to a person who takes such actions without approval."
Federal Environment Minister Tanya Plibersek said the reports of extensive land clearing were "very concerning".
"Land clearing is putting enormous pressure on Australia's native plants and animals," she said.
"We need to put a stop to unauthorised land clearing to help protect our threatened species. There must be serious consequences for anyone who does the wrong thing."
The Albanese government is in the process of setting up an independent Environment Protection Agency.
Acting NT chief minister Nicole Manison told ABC radio on Thursday she did not believe a federal response was needed.
"We are working hand in hand with the cotton industry, with of course our environmental regulators, the Pastoral Land Board, to make sure that we can grow this sustainably," she said.
The Wilderness Society says the NT is the only jurisdiction in Australia not to have native vegetation laws or a biodiversity strategy.
It says changes to federal laws should include a "national deforestation trigger".
The area planted to cotton in the NT has risen from four hectares in 2018/19 to 2873ha in 2020/21, according to the Australian Bureau of Statistics.
A Cotton Australia spokesman said the organisation was not aware of any evidence suggesting illegal land clearing in the NT.
"The NT government has an approval process in place regarding cotton growing and as an industry we respect those processes and will comply with them," the spokesman told AAP.
"There is an expectation, on behalf of all growers, that each individual grower does the right thing and if they are found not to be complying with relevant laws then they should face the legal repercussions from that."
The industry has a voluntary best management practices program, known as myBMP, covering farm and environmental management.
The spokesman said myBMP strongly encouraged growers to comply with relevant laws and compliance was subject to an independently audited certification program.