Sonae Industria Group said it began the process as a result of long delays in the reconstruction of the factory following a fire due to "political and planning difficulties".

"This has resulted in reduced and unsustainable capacity levels which, in the challenging economic climate made it necessary to consider future options in relation to the plant," a statement said.

Nigel Graham, managing director of Sonae Industria (UK) Ltd, said: "It is with great sadness and regret that after 12 years of operating in Knowsley, consultation will commence on the future of this factory.

"It will be of little consolation, but at this difficult time I would personally like to thank our loyal workforce for their ongoing hard work, loyalty and dedication. We will be focusing on talking to employee and union representatives, customers and suppliers regarding the next steps."

The factory suffered a series of fires, closures and rebuilds over the years. Three people were also killed in accidents.

A fire closed the factory for a month in 2007, and another last year resulted in a long closure and a £35m rebuild in which a demolition worker was killed. Two contract maintenance workers were also killed in 2010.

The plant reopened at the beginning of the year after several months but despite the investment, Sonae was unable to reach agreement with planners about installing new cleaning equipment for recycled wood that was vital for new plant.

There were unconfirmed reports earlier this year that Sonae Industria, which reorganised its European operations in April, establishing the UK arm as a separate unit, was looking to close Knowsley.

Sonae said if the plant closed, jobs would be lost at its plant and sales operations at Knowsley, Kirkby, St Helen’s and Merseyside. There was also the loss of 500 indirect jobs among suppliers.

Sonae also spent £15m with supply chain companies in the north-west. It recycled 400,000 tonnes of waste wood per year.

"There has been no definite decision on Knowsley’s future yet," said a company spokesperson. "But clearly closure is one option being considered."