Australian Wool Innovation (AWI) said a deal to double sales of wool to fashion firm Benetton has fallen through because of irresolvable issues, ABC Regional Online reported.

The A$1.6m (US$1.22m) deal, which would have increased sales to 4m kg a year, was announced two weeks ago.

It would have made Italian-based Benetton a leading retailer of Australian wool.

AWI is not releasing details of the "issues" preventing the sealing of the deal, ABC reported.

Furthermore, its chief executive is keen to assure the industry the deal's collapse isn't a negative indicator of market conditions.

"I'd like at put this in context: At any one time AWI has over $100m of work going on in research projects, so you're talking about 1% of the work," Len Stephens was quoted as saying.