Rio Tinto has followed suit with rival BHP Billiton and pledged to bolster its iron ore production, shrugging off criticism that its actions are causing a slump in prices that will hurt shareholders and the Australian economy.

Andrew Harding, head of Rio’s iron ore unit, said critics who argue Rio and its fellow Anglo-Australian miner BHP are killing a decade-long commodities’ boom by flooding the market with iron ore were “fundamentally wrong”.

“Curtailing production would simply create a void that was filled by other producers and new starters,” he said. “Our analysis indicates there are 32 competitive projects that could be incentivised if we were to withhold volume.”

Rio is planning to expand annual production to 360m tonnes next year and said it was confident about long-term demand for iron ore from China, India and other Asian countries.

Mr Harding’s comments followed strong criticism of the big two Australian miners from Colin Barnett, premier of Western Australia – the region where most of BHP and Rio’s iron ore is mined.

“This strategy of the two major producers to flood the market and force the price down, I mean, remember who your landlord is,” said Mr Barnett. “That is hurting Western Australia.”

Iron ore prices have slumped by 40 per cent this year below US$80 per tonne amid a jump in production and a slowdown in demand growth in China.

Mr Barnett said he would “hate” to raise the royalty rate the government charges for each tonne of ore they dig out of the ground. But if the price drop continued, it would become an issue, he said.

Western Australia is heavily reliant on royalty and tax revenues from iron ore and is implementing tough budget cuts in the wake of a dip in commodity prices.

Mr Barnett’s criticism will heighten pressure on Rio and BHP, which have faced questions from key shareholders about the wisdom of the strategy.

Ivan Glasenberg, chief executive of Glencore, which made a merger approach to Rio in July, has also criticised the strategy.

Rio and BHP insist their strategy to increase production and capture market share is in the best interests of shareholders.

Earlier this week, BHP said it would raise annual production capacity by almost 30 per cent to 290m tonnes by 2017, while cutting unit production costs by more than 25 per cent, as it attempts to undercut Rio’s production.

Mr Harding said Rio had the best iron ore resources in the Pilbara region, and he envisaged a future where Rio was consistently the lowest cost producer.

He said the company’s expansion plans were backed by compelling economics.

Rio Tinto shares were down 0.1 per cent on Thursday at A$59.03.