Transport campaigners and unionists fear a decision by KiwiRail to mothball a 144km line damaged by a freight train derailment spells trouble for other parts of the country's rail network.

KiwiRail intends diverting freight from Taranaki through Marton to Auckland or Tauranga, until deciding next year what to do with the more direct link between Stratford and Okahukura north of Taumarunui.

That follows damage to 8km of the line last week on what it says has become the most "derailment-prone" section of its national network.

Opened in 1932 after taking more than 30 years to build through steep and difficult country, the 24-tunnel line passes through the ghost town of Whangamomona, famous for its biennial republic days and passenger rail charters discontinued this year because of its poor condition.

KiwiRail chief Jim Quinn says it now carries only one return freight train a day, and the damage from the latest derailment is likely to cost up to $400,000 to repair.

Although his company had already allocated $750,000 to improve one of the tunnels, the derailment damage raised questions about the economic justification for the line.

"The amount of traffic using it at the moment doesn't justify continuing with repair work without a considered look at likely future freight volumes," Mr Quinn said.

"That doesn't meant we have decided to close the line. It simply means we need to be sure investing more than $1 million in theline within the next 12 months, and more money in future years to bring it up to standard, is justified on commercial grounds."

Mr Quinn said KiwiRail, which had recently reviewed its business ready to present a strategic plan to the Government this month, was likely to make a decision early next year on the future of the line.

The decision to mothball it in the meantime has alarmed the Rail and Maritime Transport Union and the Campaign for Better Transport, which see it as a sign of growing financial pressure from KiwiRail's Government owner.

"The National Party said they would not sell rail in the first term of their Government but neglecting basic repair work on our rail network is running down this valuable asset," said union secretary Wayne Butson.

"This decision by KiwiRail is likely to have been influenced by Government pressure for rail to suddenly become a big earner, despite years of private sector mismanagement and lack of investment."

Jon Reeves of the Campaign for Better Transport said he understood the line could easily attract more freight if maintained better. That could include dairy products of Fonterra, which had recently stopped using New Plymouth's port in favour of sending freight by rail to Auckland and Tauranga via Marton, adding more than 200km to freight runs.

Mr Reeves said KiwiRail should have learned from the 2001 closure of the Rotorua-Waikato railway line, likely to cost about $10 million to reopen after its sleepers and bridges were plundered.

"The cost of reopening lines snowballs the longer they are closed."

He said the Stratford-Okahukura line should also be protected for future passenger services, such as to carry tourists between the North Island main trunk.