Resources and Energy minister Martin Ferguson later rowed back, saying commodity prices had peaked while investments in multi-billion dollar projects would continue, especially in the energy sector.

Other ministers, worried about attacks by the opposition blaming the beleaguered Labor government's carbon and mining taxes for hurting the resources sector, swiftly weighed in to say the construction boom in resources was far from over.

"The resources boom is over," Resources and Energy Minister Martin Ferguson told Australian radio. "We've done well -- A$270 billion ($282 billion) in investment, the envy of the world. It has got tougher in the last six to twelve months."

Ferguson's comments came after BHP scrapped plans for a $20 billion-plus expansion of its Olympic Dam copper mine in South Australia and a new harbor, estimated at more than $20 billion, to nearly double its iron ore exports in Western Australia.

BHP blamed soaring development costs, a high Australian dollar and falling commodity prices for pulling the projects.

Fuelled by Chinese-led demand for its coal, iron ore and other resources, Australia's economy was one of the very few in the developed world to sail through the global financial crisis without sliding into recession.

But with China heading for the slowest pace of annual growth in more than a decade, investors are nervous about the near-term outlook for miners.

"We are going to have to make more tough decisions, invest in fewer projects, we are going to have to defer other things, we are going to have to stage projects," Tom Albanese, chief executive of Rio Tinto (RIO.AX)(RIO.AX), told a forum in Perth.

The resources boom has fuelled what has been dubbed a two-speed economy, which has pumped up the local dollar and exacerbated the pain felt in manufacturing and retail in Australia's most populous states.

While manufacturers, like Ford (F.N) and Bluescope Steel (BSL.AX), have cut production and axed jobs, unemployment has stayed at around 5 percent, thanks to jobs growth in resources projects, where truck drivers command six-figure pay packets.

BHP's Olympic Dam expansion alone would have created 25,000 jobs, South Australia's government said.

FEAR MAY BE PREMATURE

Politicians may be worried the whole economy is moving into the slow lane, but analysts say the fear is premature, as energy projects will continue full steam ahead.

National Australia Bank does not see the boom peaking until 2013 and 2014, when resource capital spending will be around 1 percent of gross domestic product higher than now.

Finance Minister Penny Wong also played down fears of a collapse in the mining boom, saying the government has factored in a peaking in Australia's terms of trade, which measures the difference between export earnings and import costs.

"We've still got a long way to run when it comes to this investment boom," Wong told Australian radio.

"We've got over half a trillion dollars of investment, and over half of that...is at the advanced stage. So I think the ‘doom and gloom' that some are putting about isn't appropriate."

The investment number she referred to includes a raft of proposed projects yet to be approved, though on Thursday the government gave the green light to a $10 billion coal and rail project in Queensland state proposed by India's GVK Power and Infrastructure (GVKP.NS) and Australia's richest person, Gina Rinehart.

Deutsche Bank warned Australia could enter a recession if weak iron ore and coal prices persist into the fourth quarter.

In a note this week, Deutsche Bank's chief economist for Australia, Adam Boyton, said: "it does seem to us that there is some complacency surrounding the prospect of a sizeable decline in the terms of trade - and some over-confidence that the investment pipeline is 'locked in'.

Seven out of eight of the 10 biggest resources projects under construction will produce LNG, ranging in scale from $5 billion to $43 billion, according to Deloitte Access Economics, and those projects remain on track, with customers locked in.

BHP put the Olympic Dam expansion and its Port Hedland outer harbor plan on hold indefinitely as it reported a 35 percent slide in second-half profit, the biggest sign of the pain inflicted by China's slowdown.

Weaker demand from China has knocked prices of all key commodities, including iron ore, languishing at its lowest levels since December 2009, copper, coal and aluminum.

BHP, Rio and no.3 iron ore miner Fortescue all warned they are cautious on the near term outlook, but all said they expect demand growth in China and India to underpin growth in the medium to long term.

MINERS PUT BRAKES ON CAPITAL SPENDING

In response to pressure from shareholders worried about poor returns in a weak global markets, miners have put the brakes on capital spending, with BHP on Wednesday announcing it would not sanction any major new projects in the year to June 2013.

BHP Chief Executive Marius Kloppers blamed soaring project costs, the high local dollar and falling commodity prices for squeezing expected returns, noting capital costs on Western Australia iron ore projects were up seven-fold in 10 years.

But BHP stressed it is still going ahead with $22.8 billion worth of work in the year ahead, including boosting production by 50 percent at its coal mines over the next three years.

World no.2 iron ore miner Rio Tinto is also going full steam ahead with iron ore expansions.

Smaller miners are the ones more likely to be hit, as lenders hesitate to back projects built on lofty forecasts.

"There are many expansion plans that will not see the light of day in the current economic climate," Neville Power, chief executive of Fortescue Metals, told reporters on Thursday. ($1 = 0.9576 Australian dollars)

(Additional reporting by James Grubel in CANBERRA and Lincoln Feast in SYDNEY; Editing by Paul Tait and Ed Davies)

• A Permanent Economic Emergency