Retail giant Harvey Norman is rejecting claims that it is destroying ancient forests to make its furniture.

A year-long investigation by environmental group Markets for Change (MFC) alleged that major furniture companies, including Harvey Norman and Freedom Furniture, sourced some of their timber from native Australian forest which contained threatened species.

These forests - in New South Wales, Western Australia, Tasmania and Victoria - were reportedly a habitat for koala and rare bird species.

Harvey Norman contended that its sourcing of native wood was within Australia's environment and biodiversity laws, which prevented destruction of old growth.

The report said that Tasmanian oak, blackwood, jarrah and marri was shipped to Chinese manufacturers, made into tables, chairs, bed frames and cabinets, and sent to Harvey Norman stores, of which there are 29 in New Zealand.

MFC said 10 companies sourced the timber but it has focused its criticism on Harvey Norman, the largest furniture and electrical retailer in Australia, and seller of A$5.2 billion ($6.7 billion) in products last year.

The report's authors wrote: "This chain of custody report reveals for the first time the complicated path Australian native forest wood can take.

"It implicates a number of the overseas and Australian companies involved in turning Australia's forests into mass market furniture products."

MFC said that many of the products were poorly labelled, so consumers could not track the complex distribution chain.

Harvey Norman co-founder and chairman Gerry Harvey told the Herald he was trying his best to use recycled timber or timber from plantations.

He said that a third of his furniture manufacturers' wood came from native forest.

"I'm a bit of an environmentalist. We've got a sustainable forest policy that to most people would make a lot of sense. With native forests, we [cut down] five acres from 100,000 acres. We mark out the big trees, trees that might be a habitat, and don't knock those over.

"For the life of me I can't see how that's bad. But some people would say it is. But then some people would say you should never kill any animal."

Harvey Norman can source native timber legally because the forestry industry is exempt from environmental protection and biodiversity law - provided that sawmillers followed rules set out in a Regional Forestry Agreement.

Under these rules the forestry industry can cut down native forest through selective harvesting and clearfell logging - where entire areas of trees in cooler forests are felled to allow more light to reach the forest floor. The rules also prohibited the felling of forests which provided a habitat for endangered animals.

MFC chief executive Tim Birch said the RFA rules fell woefully short of protecting native wood and the ecosystems they contained. He believed that Harvey Norman should be making an ethical stand, instead of exploiting native timber simply because it was legal.

Asked whether MFC should be targeting lawmakers instead of retailers, Mr Birch responded that his organisation focused on Harvey Norman because direct political action was stymied by powerful corporate and lobby groups.

"We don't think the Government are capable of fixing this problem. And we don't have the resources to campaign against every single company. [Harvey Norman] is very influential ... with an advertising budget of around $300 million."

Mr Harvey said that shoppers could be more confident in the sustainability of certified Australian native timber than some of the alternatives.

"Some [importers and manufacturers] ... might be a little unscrupulous, and the wood might have come out of Indonesian or Malaysian rainforest. You wouldn't know, and would have great difficulty ever trying to track that down.

"By supporting Australian and New Zealand furniture, you know the timber that's being used."

* Harvey Norman and Freedom Furniture have been accused of sourcing their timber from native Australian forests.

* The forests are a habitat for koala and rare birds.

* Tasmanian oak, blackwood, jarrah and marri are being made into tables, chairs, bed frames and cabinets, and sent to Harvey Norman stores.

* There are 29 Harvey Norman stores in New Zealand.