The owners of Gladstone Power Station, in central Queensland, announced on Wednesday the plant might be retired as early as March 2029, six years ahead of schedule.
While no final decision had been made on the future of the near-50-year-old facility, staff were notified about the closure plan.
The early closure could be devastating for local industry and should be fought by the state government, federal MP Colin Boyce said.
"You cannot run the fourth largest coal terminal in the world and the two refineries and alumina smelter on wind turbines and solar panels - it's just not feasible," the Nationals representative for the region said.
"The Gladstone Power Station could continue its role for the next 10 years."
Resources giant Rio Tinto is the largest shareholder in the joint venture, which also includes Texas-based firm NRG Energy.
The Australian Energy Market Operator was also notified of the potential early closure, although the date could be pushed back "should market and other factors allow", the owners said.
Gladstone Power Station has operated since 1976 and has a capacity of 1680MW, making it the largest of Queensland's eight coal-fired power stations.
It supplies power to the nearby Boyne smelter, Australia's second-largest aluminium smelter, which is also majority-owned by Rio Tinto.
The state's Liberal National Party government recently backed the future of coal-fired power in Queensland, with Treasurer David Janetzki saying the fossil fuel would remain part of its energy network for the foreseeable future.
The treasurer on Wednesday said the government knew about the impending closure and Rio Tinto had been working on contingency plans for some time.
"The Crisafulli government has been actively working with our government-owned corporations to prepare," Mr Jatetzki said.
But his comments contrasted with those of his leader, David Crisafulli, who earlier said he was unaware of the announcement.
The confusion demonstrated a state government clearly divided on energy policy, Labour's Shannon Fentiman said.
"Rio Tinto's decision to close its power station years earlier shows that that is a decision based on economics," the shadow treasurer said.
"We know that the LNP absolutely do not support renewables."
The Queensland Conservation Council and the Australian Conservation Foundation hailed the Gladstone decision as further evidence that industry was getting on with the transition to renewable energy.
"Rio Tinto is Queensland's biggest energy user and they've made it clear they can't keep their Gladstone operations and smelter globally competitive relying on expensive coal power," conservation council director Dave Copeman said.
Australian Conservation Foundation climate and energy program manager Gavan McFadzean said the announcement was an example of "a good transition" with enough notice of the closure given by the operators.
"The market is moving. The Queensland government should not hold it back," he said.
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