Victoria's $2.6 billion furniture industry could face a major upheaval because of a shortage of quality timber that it blames on government mismanagement and excessive environmental demands.

The Furniture Industry Association of Australia is urging the State Government to hold an inquiry into the reasons behind an impending shortfall of timber, which could see the volume of sawlogs from forests cut by more than a third.

Graeme Cock, the chief executive of the Victorian branch of the furniture association, told the Age that anger among his members had been building up and was at boiling point.

"We use 44per cent of Australia's hardwood. Manufacturers already can't get enough timber and now are facing the possibility of huge cutbacks. There is enormous insecurity" he said. "We are demanding an explanation from the government and an inquiry into how this happened."

At issue is an apparent Department of Natural Resources and Environment overestimation of how much timber is available to industry outside national parks and reserves under the state's five regional forest agreements.

The department is believed to have miscalculated the sustainable yield - the rate at which forest can be cut so that it is not depleted within the 80-year harvest cycle. Less forest is reported to be available to the industry than the department had promised in Regional Forest Agreements, which were designed to offer the state's industries 20 years of investment security.

Major revisions of sustainable yield are believed to be planned less than two years after the last two RFAs, the West and Gippsland, were signed.

A government report on sustainable yield is due to be released by the end of the month.

Reports suggest the cutbacks on average across Victoria could be more than 33per cent, threatening 1200 jobs and up to 20 sawmills, many in towns where the sawmill is the only employer.

Timber-mill owners who have invested in expensive kiln-drying and other equipment on the promises made in the RFAs face possible ruin.

Cutbacks are expected to flow on to the furniture industry.

Victoria is the biggest furniture manufacturing state, with a turnover valued at $2.6billion. The sector employs more than 21,000 people in 900 companies, 90per cent of which are in Melbourne.

Mr Cock, an industry veteran, said his industry believed too much forest had been "locked away" in various reserves.