Talks between the owners of the Tiwai Point aluminium smelter and Meridian Energy over the price of power have broken down, the union representing the plant's workers has said.
The plant has been losing money in the face of a global slump in aluminium prices and the strong New Zealand dollar, and is seeking to cut costs.
Last month, Tiwai Point announced plans to lay off 100 workers.
The Southland organiser for the Engineering, Printing and Manufacturing Union, Trevor Hobbs, said management had advised workers on Thursday that state-owned Meridian had walked out of the talks.
He said the Government was "playing Russian roulette with the Southland economy".
The Labour Party's economic development spokesman, David Cunliffe, also said he had been reliably informed that Meridian had broken off the negotiations.
However, New Zealand Aluminium Smelters, the plant's owner, said Meridian was continuing to talk with all stakeholders, but would not give specifics.
NZAS is majority owned by mining giant Rio Tinto.
EPMU leaders fear the plant could close with the loss of hundreds more jobs if Meridian does not drop the price of its electricity or the Government does not do something.
"It's time for the Government to step in, sort out a fair deal between Meridian and Rio Tinto that allows the smelter to remain open, and finally act on the overvalued New Zealand dollar," said the EPMU's Director of Organising, Alan Clarence
The smelter employs about 750 people and is a mainstay of the Southland economy, supporting thousands of other jobs in the region.
It consumes about 15% of New Zealand's electricity supply.