May 26 Lobbying by big miners helped kill a proposed Australian Senate inquiry into the iron ore industry after allegations they had colluded to depress prices and drive rivals out of business, the senator who had called for the inquiry said on Tuesday.

Independent Senator Nick Xenophon had wanted the probe to look into the impact of the price collapse on government revenue and to consider whether action was needed to ensure healthy competition in the sector.

Prime Minister Tony Abbott publicly threw his support behind the inquiry, but days later pulled back.

Xenophon said that "things unravelled very quickly" after Abbott's initial statement of support. He attributed that change of heart to intensive lobbying by powerful mining figures.

"There was a lot of lobbying. Gina Rinehart's people got on the phone, as I understand it. And I think they were very effective," he told Reuters.

"I'm sure that Canberra's economy was stimulated by the influx of lobbying dollars."

Treasurer Joe Hockey said he ditched the idea of an inquiry after consulting with regulators and the mining sector.

A spokesman for mining billionaire Gina Rinehart's Hancock Prospecting declined to comment on any lobbying.

If the government was pressured to drop the probe, it would underscore the power big miners still wield in Australia's commodity reliant economy despite the dramatic decline in the sectors fortunes since the country's mining boom went bust.

The iron ore price slump has caused a A$20 billion ($16 billion) loss in government revenue in the past year and the fiscal 2016 budget hinges on iron ore fetching at least $48 a tonne over the next year.

Xenophon said that he was persuaded to launch the inquiry during a meeting in Perth with Andrew "Twiggy" Forrest, founder of Fortescue Metals Group, Australia's third-biggest iron ore producer.

Forrest has accused Rio Tinto and BHP Billiton of over-producing to drive out competitors despite Fortescue having quadrupled its own production in the last seven years.

BHP and Rio Tinto have denied over-producing to drive out competitors.

The senator dismissed as "silly" accusations that he had been promoting Forrest's interests, citing a long record of support for competitiveness measures.

BHP Chief Executive Andrew Mackenzie labelled the idea of an inquiry a "ridiculous waste of taxpayers' money."

A spokesman for Rio Tinto declined to comment on whether it had a hand in killing the probe but its chief executive has previously said the iron ore business is "survival of the fittest." ($1 = 1.2776 Australian dollars) (Editing by Ed Davies)