Federal Resources and Energy Minister Gary Gray says it was "inappropriate" for West Australian Premier Colin Barnett to make public a letter the minister sent to him about the Browse Basin.
Woodside has abandoned plans to build a gas plant at James Price Point and is now pursuing floating processing, which would involve processing gas on a purpose-built vessel off the coast.
The Commonwealth has varied the conditions on five retention leases, but Woodside is waiting for a WA government decision on two more Browse leases in state waters.
Mr Barnett told parliament last Thursday he was "surprised" to receive a letter from Mr Gray during the caretaker period.
"Gary Gray basically argues the case ... that Western Australia should give up its rights basically, and concede, as the Commonwealth has, and to remove all conditions that would bring any part or all of that project onshore," Mr Barnett said.
However, Mr Gray said the letter was written and sent before the federal government went into caretaker mode.
Regardless, ministers were allowed to write letters during the caretaker period, Mr Gray said.
"It's not an improper thing to do," he told reporters in Perth on Sunday.
"It was necessary, I felt, to make the premier aware of specific information about the Browse retention leases."
Mr Gray said the project proponents had said they would not invest in an onshore development, so the government needed to provide an alterative solution.
"It gives them, the proponents, the possibility to take their gas to the Burrup peninsula, to Darwin, to the Kimberley coast, or to develop it in-situ using floating technology," he said.
Mr Gray said while it was inappropriate for him to discuss his private correspondence with the premier, he needed to correct the claim that he said WA should give up its rights.
"With less than five per cent of the resource in WA's control, and with that portion of the resource being a very difficult part to develop ... it may well be an imprudent thing for the premier to encumber that small proportion of the field with a very large potential investment cost of up to $2 billion," he said.