Coles and Woolworths have offered to take back mountains of soft plastic waste after a private recycling scheme failed, and say dumping it will be a last resort.
The REDcycle scheme collected waste generated by the supermarkets and other businesses but it failed back in November.
It has since emerged the plastic wasn't being recycled but stockpiled, with 32 stashes found so far in NSW, Victoria and South Australia.
Environmental watchdogs have bee pushing for a solution, saying the waste - 12,393 tonnes in all - could threaten public safety if it catches fire.
Coles and Woolies are now offering to take back the waste collected in their stores and work on a solution so it doesn't "unnecessarily" end up in landfill.
Coles sustainability chief Matt Swindells says the two chains paid REDcycle more than $20 million over the last decade "to ensure this would happen".
"We remain deeply disappointed by the unrecycled stockpiles."
REDcycle founder and CEO Liz Kasell has welcomed the "supportive and collaborative approach by Coles and Woolworths" and has indicated she will have more to say on the offer later.
News of the offer comes days before a legal bid by an aggrieved creditor to wind up RG Programs and Services Pty Ltd, the commercial company behind the REDcycle scheme.
BTG Logistics claims it hasn't been paid for storing 660 tonnes of plastic for REDcycle, with the matter to be heard in a NSW court on Monday.
REDcycle has previously denied its stockpiling activities were a cover up.
It says it was holding the waste in a bid to ride out problems including a huge jump in the volume of returned plastics, the loss of its largest taker of returned plastics due to a fire, and insufficient recycling capabilities in Australia.
But observers have questioned how Australia's only national soft plastics recycling scheme was left to a self-described, well-meaning "team of seven mums" at REDcycle, with no apparent oversight by government.
REDcycle's parent company is also facing charges brought by Victoria's environmental watchdog, accusing it of failing to comply with a direction to reveal the locations of its stockpiles.
Meanwhile, in NSW, the grocery chains' offer to take on the stockpile problem has bought them more time with that state's Environment Protection Authority.
Last month, the watchdog issued Coles and Woolies with a draft clean up notice for 5200 tonnes of plastic stored at 15 sites in NSW.
It said the retailers had a responsibility to fix the problem as REDcycle scheme participants and generators of much of the waste it collected. That notice has now been revised, with the watchdog noting their willingness to cooperate.
The chains now have seven weeks to remove the stockpiles from their current locations and safely store them elsewhere - for up to a year.
"The revised notice gives the retailers 12 months to develop a lawful solution that determines the future of the materials, whether that be reprocessing at a recycling facility, exporting it overseas, or, as a last resort, sending it to landfill," the watchdog says.
Federal Environment Minister Tanya Plibersek praised the retailers and said a soft plastics task force would next week release a road map on the next steps to to reinstate collection systems around Australia.
Ms Kasell founded REDcycle in 2011, alarmed by the amount of soft plastic going into her kitchen bin. She is the sole shareholder of REDcycle's parent company, RG Programs and Services.
She has previously declined AAP's requests for an interview and REDcycle, and the operation has refused to answer questions about its financial position.
"As we are considered a very small business with under 50 employees, we are not required to publicly disclose financial statements," a spokesperson recently told AAP.
Coles and Woolies have made it clear their offer does not involve any assumption of past REDcycle liabilities, and is not an offer to acquire the REDcycle business.
