The decision was made after a five-month, $1.3 million investigation, which took into account the recent damage to the state's forestry assets during the summer's devastating bushfires.

Ken Dale from the Tumbarumba Business Chamber said the decision would be welcomed by fire-affected communities in the Snowy Valleys shire, which are beginning the long task of rebuilding after the devastating bushfires.

"If it was privatised, where's the future?" Mr Dale said.

"This issue is, if you privatise it and it's not making a profit, the industry closes."

About 25 per cent of the Forestry Corporation's softwood division suffered some degree of fire damage over summer.

Salvage operations to save as much of the fire-damaged timber as possible have begun.

Snowy Valleys mayor James Hayes has also welcomed the decision not to privatise the industry.

"I think our whole community, which has been so impacted by the fires, will breathe a collective sigh of relief," Councillor Hayes said.

"It's wonderful they've taken this step and have listened to what the community and industry experts have told them. I applaud them for their decision."

Deputy Premier and Minister responsible for Forestry and Disaster Recovery John Barilaro said Forestry Corporation was focused on harvesting timber damaged during the fires, and would soon embark on a massive re-planting program.

"When I took on the role as minister responsible for forestry, I was always determined to grow the harvestable forestry estate across NSW, and these fires have only strengthened my resolve to increase timber supplies and create more jobs and opportunities in the sector right across our state," Mr Barilaro said.

"Our priority now is to assist Forestry Corp and the entire forestry industry get back on its feet after the fires."

The state opposition, which had opposed the sale, has also welcomed the government decision.

"I'm pleased that the government has finally seen some common sense and adopted NSW Labor's consistent call, supported by timber-dependent rural and regional communities, to stop the sell-off process," opposition natural resources spokesman Paul Scully, said.