The Department of Planning and Environment has approved the company's plan to set aside a conservation land bank at Maddens Plains to make up for the impacts of future mining.

The department said approvals for the Dendrobium and Bulli Seam coal mines included conditions that conservation land be set aside to compensate for any impacts as the mines progress.

"We've now ticked off on a different approach, which avoids piecemeal conservation and has the potential to see a large area set aside for environmental protection, before any land has been affected by mining," the department said.

But Illawarra Greens member and Otford Protection Society president Natasha Watson described the concept as "a bit of a rort", saying the land was zoned E2 - the highest-ranking conservation zoning below National Park status.

"Hopefully it will be [preserved] as a wildlife habitat corridor connecting the Helensburgh region to Dharawal [National Park] and the state conservation area," Ms Watson said. "But at the same time under E2 zoning it was already protected from development anyway. It was already safeguarded, it isn't like BHP [Billiton] has come in on a white stallion and saved the environment.

"They've basically bought it with the intention to use it to biobank for offsets in order to expand the mines and continue mining under our swampland and around our drinking water catchment area."

Illawarra Coal Holdings, a subsidiary of BHP Billiton, bought the 590 hectares for $2.4 million in May last year and cited biodiversity conservation as one of the reasons.

To the west of the package of land is the Dharawal National Park and beyond that lie Illawarra Coal's Appin and West Cliff mines.

To the north-west is Heathcote National Park and the Illawarra Escarpment State Conservation Area is located to the south.