State Owned Enterprises Minister Todd McClay and Finance Minister Bill English said that entering temporary voluntary administration, and freezing a portion of its debt, provided the best chance for parts of the business to continue to successfully operate in the future under new ownership.
Solid Energy acting chairman Andy Coupe admitted it was "unlikely" that any sale, or sales, would cover its outstanding debt.
Climate change campaigners Coal Action Network Aotearoa accused the government of ignoring coal's "bleak" future.
Spokeswoman Cindy Baxter wondered who would want to buy the failing company's assets.
"Coal is on the way out. Earlier this month, a coking coalmine in Australia changed hands for just $1," she said.
"The downturn in the Chinese steel industry has led to a glut of coking coal and iron ore. Analysts don't expect to see a change in this any time soon."
Act Party leader David Seymour said New Zealand taxpayers "deserve an apology" after the government invested in trying to prop up the struggling company.
"Obviously the company should have been sold when it still had some value," Mr Seymour said.
Prime Minister John Key said today was "a very sad and difficult day" for the employees of Solid Energy, but he stood by the Government's handling of the state-owned enterprise.
Mr Key said voluntary administration was a better option than liquidation because jobs could potentially be preserved under a different owner.
He said he stood behind the decision to pump $200 million into the company.
"Of course we could have pulled the pin on the company some time ago and people would have then said why didn't you try and preserve jobs and give the company the opportunity to trade out.
"Coal prices haven't collapsed overnight ... I think it's been the right thing to try and nurse the company through."
Mr Key said he was "not hugely confident" the Government would see the money it invested returned.
Green Party energy spokesman Gareth Hughes said while the workers and communities were relieved by today's announcement, "the sun is setting on the coal industry".
"The Government needs to step up, take responsibility for pushing Solid Energy too far, and act to support workers and their families as a priority."
Solid Energy's workers and the West Coast community now face two more years of uncertainty, Opposition leader Andrew Little said.
"While there is relief that worker entitlements such as redundancies may be protected and that some jobs will be saved, there is a lot of work to be done in the region to create new opportunities after the loss of hundreds of jobs in mining industries over the past two years."
The Engineering, Printing and Manufacturing Union (EPMU) said miners were relieved the announcement didn't include closures or immediate redundancies.
Since 2012, nearly 900 jobs have been lost at Stockton, Spring Creek and Huntly East mines.
"Solid Energy was always going to struggle with a low international coal price, but bad management got them into a situation where they simply couldn't weather the storm," EPMU assistant national secretary Ged O'Connell.
"There is still a risk of liquidation, but we hope that voluntary administration will mean more jobs can be saved, and workers' entitlements to compensation and annual leave payments will be secured."
