Rio Tinto could force small businesses to collapse through an unfair decision to double the contractor payment period, West Australian Premier Colin Barnett says.
The decision to extend pay periods from 45 to 90 days has also drawn the attention of Prime Minister Malcolm Turnbull, who says he will raise it with the mining giant.
The company's action was not fair or reasonable and he hoped it would reconsider, Mr Barnett said.
Rio Tinto blames poor commodity prices and is using the new strategy to free up cash.
But Mr Barnett said it just transferred the problem to the state's more vulnerable small businesses.
"It's in everyone's interests to keep those companies viable. Small companies on big contracts can go under very easily and very quickly if the terms of payment are stretched out," Mr Barnett told reporters.
"To shift that financial burden onto local contractors, including many small businesses, I don't think is a good policy and I'm hoping that Rio Tinto will reverse that."
Mr Barnett said State Development Minister Bill Marmion and Mining and Petroleum Minister Sean L'Estrange would raise the objections with Rio's WA-based iron ore boss Andrew Harding.
Mr Turnbull said he had spoken about the issue with some of WA's small mining suppliers during a tour of the Pilbara this week.
"I met yesterday in Karratha with many of those small businesses ... and this was one of several issues that they raised with us and I will raise that concern, as I undertook I would, with Rio Tinto," he told reporters.
Nationals MP Brendon Grylls accused Rio of corporate bullying and a "blatantly unfair" decision that would force smaller businesses to lean on banks while waiting for payment.
A Rio Tinto spokesman said the measure had been taken in order to preserve and maintain jobs and suppliers in a tough global environment for commodities.
"We are working with banks to use our strong credit rating to establish an optional supply chain financing program to support suppliers," the spokesman said.
