Project leader Dr Damon Honnery from Monash University said wood from the oil mallee tree, common to Western Australia, could be super-heated to produce a vapour that could then be condensed into liquid for diesel engines.

But Honnery told AAP that the oil was not yet suitable for car engines, as the filtering systems were too fine, and had only been used in a test engine.

However, he believed that appropriate refining processes for the fuel could be developed within the next 10 years.

Planting these trees could also help Australia’s soil salinity problem, as their complex root system reduced water table problems, Honnery told ABC Radio.

"The fuel we're talking about is almost a greenhouse neutral fuel so we get three benefits, we can help solve salinity, we can help to solve and reduce greenhouse gas emissions from transport and we get to produce a fuel as well," he said.

The project, funded by the Australian Research Council, involves researchers from Monash, University of Melbourne and Aston University in the UK.

They are working out the complex chemical composition of the Mallee fuel, how to produce such a fuel and how it could be adapted to run diesel engines.

Colleagues from Western Australia's Department of Conservation and Land Management have shown that these roots continue to grow even when the wood from the tree branches is being harvested.