A new tender for the development of a luxury hotel on Rottnest Island will go out to the market in the next few months after negotiations between the island's authority and the Broadwater Consortium broke down.

In a statement, the Rottnest Island Authority said the failed talks for the Mt Herschel hotel were on the back of the current economic climate.

"The current financial climate has undoubtedly contributed to both the Rottnest Island Authority and Broadwater Consortium being unable to satisfactorily conclude negotiations," RIA chairman Laurie O'Meara said.

"The development of the a new hotel at Mt Herschel remains a priority for the Authority, and we will be going to the market with a request for proposal in the next few months."

Broadwater was selected as the preferred proponent for the 120-room hotel in early 2007.