A marine sanctuary in the Kermadec Islands could be back on the table – but not in its original form.

Labour and NZ First are working on an alternative proposal for an ocean sanctuary in the region which allows some fishing to take place.

The compromise solution would appease NZ First, which was concerned about the impacts of a no-take zone on the fishing industry and iwi.

It remains to be seen, however, whether the Green Party would support a watered-down proposal.

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The Kermadec Ocean Sanctuary was announced with much fanfare by the National-led Government at the United Nations in 2015. All parties backed the Kermadec Ocean Sanctuary Bill at the first reading, though NZ First expressed serious reservations at the time.

It was put on hold after iwi challenged it in the High Court, saying that it breached Māori fishing rights.

The Greens sought to have the sanctuary progressed as part of coalition talks after the election, but NZ First, which has links to the fishing industry, was against it.

NZ First leader Winston Peters is now in discussion with Environment Minister David Parker about a possible "mixed-use" marine reserve.

That would mean the majority of the reserve would be off-limits to the industry, but a small amount of commercial fishing would be permitted.

Peters said NZ First had proposed the idea as a way of resolving the impasse on the sanctuary.

"We can't just leave it up in the air," he told the Herald.

He was confident that an agreement could be reached by the end of the year.

The new proposal is partly based on the Ross Sea Marine Protected Area in the Southern Ocean, a New Zealand-backed project which was finally advanced after it was agreed that some fishing could take place within the reserve.

The Green Party would not comment on the issue.

A spokesman said the party was continuing work on its coalition agreements with NZ First and Labour and it was confident that it would be able to advance them.

But it is understood that the Greens could be open to an alternative reserve if it meant making progress on the sanctuary.

National Party environment spokesman Nick Smith, who devised the plans for the original sanctuary, said his party's preference was for a no-take area.

It would have to see the detail of any alternative proposal before deciding whether it would support it, he said.

An alternative plan for the sanctuary has previously been proposed by Maori Fisheries Commission Te Ohu Kaimoana, which is leading the legal challenge against the sanctuary.

It offered to voluntary shelve its quota for the region if the Government agreed to maintain its fishing rights – an offer which the former National Government rejected.

The coalition agreements between Labour, NZ First, and the Greens do not make a concrete commitment to establishing the sanctuary.

The Labour-NZ First agreement says the two parties will work with Maori and other quota holders to "resolve outstanding issues" about the sanctuary.

The Labour-Green agreement says they will "use best endeavours" to establish the sanctuary.