(Releads with lockout called off)
By James Regan
SYDNEY, Dec 15 (Reuters) - Australia's AGL Energy Ltd said on Thursday it was withdrawing plans for an employee lockout at its Loy Yang power station and coal mine after industrial action proposed by union workers was called off.
Australia's second-most populous state, Victoria, was facing a severe power shortage over the Christmas holidays due to the lockout scheduled for Dec. 28.
In response to union plans to stage a work stoppage, AGL earlier on Thursday countered with plans lock out all 578 employees at both sites in Victoria to protect the safety of employees and equipment.
"As a result of this withdrawal, there is no longer any need for AGL to take employer response action," the company said in a statement.
AGL warned the lockout would create a "significant disruption" and put power supplies at risk. The lockout could leave the power station and mine at least partially shut for possibly up to 10 days, according to an AGL spokeswoman.
"You don't just shut something of this size down immediately. You must prepare ahead of time and wind things down, and then slowly ramp back up," the spokeswoman said. "It could take up to 10 days."
The mine also supplies a second power station owned by France's Engie, which means more than half the state's energy fuel would have been disrupted.
The actions were part of an escalating feud between AGL and the Construction, Forestry, Mining and Energy Union over stalled talks on wages and working conditions.
A stoppage would have left one of the state's biggest industrial users, the Portland aluminium smelter, without power, according to a spokesman for the metal processing plant.
The smelter, co-owned by Alcoa, CITIC Resources and an arm of Marubeni Corp, produces about 300,000 tonnes of aluminium a year. A long power outage can cause molten aluminium to solidify inside the smelter.
Reporting by James Regan; Editing by Tom Hogue and Christian Schmollinger