The Baird government has suspended AGL's operations at its pilot coal seam gas field in northern NSW pending the result of an investigation launched on Wednesday, Energy Minister Anthony Roberts said.

The Division of Resources and Energy has also dispatched investigators to inspect the four CSG wells near Gloucester. They will join counterparts from the NSW Environment Protection Authority, which has begun its own probe into the energy giant's operations.

The joint probe comes a day after AGL said it was "voluntarily" suspending work at the site after it had detected banned BTEX chemicals in flowback water from two of the wells and in an above-ground water storage tank.

AGL attributed the presence of the toxic chemicals -  benzene, toluene, ethylbenzene and xylenes – to natural sources, saying it had not used them in its own fracking operations.

However, the EPA was angered that it had not been informed of the BTEX chemicals in the samples when data was revealed to it on January 15, even though the company knew of their presence.

In a media release published late on Tuesday, Mark Gifford, the EPA's Chief Environment Regulator, said his agency was "very concerned at AGL's lack of timeliness and transparency in informing us of these results and we will be conducting a full investigation".

The spokesman for Mr Roberts said the investigation would be "a priority" for the department. The company, though, would be able to continue work to ensure the safety of the well during the suspension of its licence.

"It is appropriate that operations at the Waukivory Pilot Project site remain suspended while all the facts are gathered by DRE investigators," Mr Roberts said.

"BTEX has previously been identified in baseline groundwater tests carried out before the commencement of the Waukivory Pilot Project," Mr Roberts said. "The use of BTEX chemicals was banned by the Liberals and Nationals government for use during coal seam gas fracture stimulation in 2011.

"The investigation will determine exactly what has happened and why traces of BTEX chemicals have been identified in the produced water from the Waukivory Pilot Project," he said.

'Off the reservation'

Opposition leader Luke Foley said the AGL suspension was the "perfect demonstration why NSW needs an urgent moratorium on coal seam gas activity – including Gloucester", adding that only Labor will implement such a halt.

"AGL has been allowed to wander off the reservation because of lax Baird Government oversight," Mr Foley said. "Clearly, the company's disclosures have been less than forthcoming – but the regulator has gone missing when it should have been nipping at its heels."

Mr Foley said the government had "rubberstamped" AGL's discharge of flowback water into Hunter Water's network, with the EPA giving the move a clean bill of health even though it been opposed by the water agency.

"We now need rigorous analysis to establish whether BTEX contaminant has reached there," Mr Foley said.

Fairfax Media has sought comment from the EPA whether its plans for a "full investigation" of AGL's fracking extend to revisiting the Hunter Water discharges.

Decision welcomed

The government's suspension of the Gloucester pilot project, though, has been welcomed by groups opposed to CSG.

"We congratulate Minister Roberts on finally having the courage to suspend AGL's operations," John Watts, a Groundswell Gloucester spokesman, said. "However it is vital that this be seen as only a first step leading to licence cancellation."

"The disturbing disclosure about BTEX chemicals is simply the latest in a series of events which have shown the folly of allowing AGL to frack in the beautiful Gloucester Valley," Mr Watts said, adding his group has requested "an urgent meeting with the minister".

Steve Phillips, a regional coordinator for Lock the Gate, said AGL's fracking "fiasco" had been brought about following a series of government failures.

"The government failed to heed the community and implement recommendations from the Chief Scientist [Mary O'Kane], and the EPA failed to insist that all testing and monitoring arrangements be finalised before the operation could begin," Mr Phillips said.

"The NSW Gas Plan is in tatters," Mr Phillips said. "We've got an election in eight weeks' time, and people in regional New South Wales want to know if the government is going to deal with the unfinished business of mining reform before another community has to suffer this kind of shoddy treatment."

AGL responds

AGL said it had concluded that the BTEX concentrations it found in its water sampling had not damaged the environment.

The company "sought expert advice which confirmed its assessment that the BTEX concentrations found did not harm the environment or affect human health", an AGL spokeswoman said.

AGL then sought to verify that the samples were not contaminated by other activities. It also reviewed historical data, inspected the sites involved and checked monitoring points.

"Following these review processes, in the interests of acting prudently and because of the community's concern about BTEX, AGL then determined a full review of the sampling results was needed and voluntarily suspended operations," the spokewman said.