Australia eased foreign ownership restrictions on Chinese state-owned coal firm Yanzhou Wednesday to help shore up the miner amid tough conditions in the sector.

Treasurer Joe Hockey said he had agreed to relax a number of conditions placed on Yanzhou Coal as part of its Aus$3.5 billion (US$3.2 billion) takeover of Felix Resources in 2009, after a request from the Chinese firm.

One of the key requirements was that Yanzhou reduce its stake in wholly-owned Australian subsidiary Yancoal to less than 70 percent by the end of this month and its share of Felix's four coal mines to 50 percent, in a bid to alleviate foreign ownership concerns.

"Since those conditions were imposed, significant challenges have emerged for the Australian coal industry, including slowing demand, declining coal prices and a number of mine closures," said Hockey.

"To date, Yanzhou has made progress in meeting those conditions by reducing its stake in Yancoal to 78 percent. It has sought my approval to have the conditions removed so it can maintain its existing stake."

Hockey added that the government remained "open" to Yanzhou returning to 100 percent ownership of Yancoal in the future.

"While foreign investment proposals are considered on a case-by-case basis, the government has no in-principle objection to 100 percent foreign ownership of Australian companies where it is not contrary to the national interest and is open to any such proposals from Yanzhou in the future," he said.

Hockey said Yanzhou had committed to continuing to support Yancoal's Australian operations and would "ensure Yancoal continues to operate so that it remains solvent" as long as it owned at least 51 percent of the subsidiary's shares.

"In addition, Yanzhou will extend its existing loans to Yancoal if required, and will support Yancoal's plans to expand the Moolarben open cut mine," he added.

Coal prices have slumped some 20 percent since 2010 as key market China slows, hitting demand, and extra supply comes online. Major miners have scaled back or shelved projects in response.

It is the second major coal mining decision by the new conservative Australian government in as many days, following Tuesday's approval of a major export port expansion for India's Adani group on the Great Barrier Reef coast.

It also comes amid criticism of Canberra for blocking the sale of GrainCorp to US agribusiness giant Archer Daniels Midland last month, prompting questions about Australia's attitude to foreign investment.