A wilderness railway tourist attraction in Tasmania will shut for major maintenance after the front wheels of a steam locomotive derailed while carrying 90 passengers.

The move to shut the West Coast Wilderness Railway has angered the state's Rail, Tram and Bus Union, which claims more than 100 workers will be left in limbo.

No was injured in the minor derailment on February 28 near the town of Strahan.

The incident, under investigation by the Office of the National Rail Safety Regulator, forced the suspension of services departing Strahan.

The state government on Friday announced major upgrades would be undertaken on the railway over winter following a review of operations.

"Demand for the rail experience has grown significantly since borders were re-opened and is in many respects being challenged by its own success," Transport Minister Michael Ferguson said.

"The age of the infrastructure and the work that needs to be done calls for a more intensive, programmed work plan during the quieter time of year.

"It was a hard decision to make, but a necessary one."

The West Coast Wilderness Railway runs trips on a 35km section of wild rainforest track between Queenstown and Strahan.

Strahan services will remain closed, with Queenstown services to shut from June 5. Operations are expected to be phased back before summer.

Rail, Tram and Bus Union Tasmanian secretary, Ric Bean, said the decision to entirely shut the railway was "dramatic overreach" and done without consultation.

"Over one hundred workers are now in limbo, not knowing how they will pay the bills over winter," he said.

The state government, which has provided $16 million for the railway, has developed a $1 million program to support tourism businesses during the winter.

It will also provide vouchers for Tasmanians to holiday in the west.

West Coast Wilderness Railway acting general manager, Ian Robertson, said a single maintenance response was the most effective approach.

"It has become clear that, without action, passengers may not have the highest quality journey and this could quite quickly erode our brand and reputation," he said.

"The team has worked tirelessly to keep the wheels turning with ageing locomotives and rail infrastructure.

"To achieve certainty well into the future, we believe that this is the best course of action."

People who have booked trips during the closures will be refunded.