minister Anant G Geete asked Haryana to take over the entire land in lieu of settling dues related to voluntary retirement schemes (VRS) of its employees and other liabilities.
Geete wrote to Haryana government saying it could consider attractive compensation for the workers before shutting the unit.
The PSU had manufactured successful tractors like HMT Zetor, HMT 3511 and HMT 5911 suitable for all farmers.
For nearly two decades, the unit's manufacturing capacity had gone down drastically with private players capturing the tractor market, directly impacting around 2,000 employees.
"We had asked for about 400 acres for creation of new industrial estate in Pinjore," a state government official was quoted as saying in a daily.
"We had also offered to allot same-sized land to HMT in the upcoming industrial estate in Barwala. Keeping in view the Union ministry's response, we will examine the issue afresh."
However, the employees were not happy. Shivalik Vikas Manch president Vijay Bansal, who has been working for HMT's revival, called the move unfortunate.
"This will not only affect thousands of families directly or indirectly attached with this factory, but will also lead to monopoly of private sector in the tractor industries. Due to low cost, HMT tractors were a check on private industries. This clearly comes as a shock for Make in India campaign of the government of India.''
HMT had its golden days till 1999 when it reached the highest output figure of 19,500 tractors in a year and manufactured the highest number of machine tools.
Its decline began from 2000 following the surge in private players in tractor making, especially foreign companies. HMT's failure in keeping pace with the changing trends played its part as well.
In April 2013, the Centre approved Rs 1,083 crore for the revival ailing HMT, Pinjore. The package included salary and arrears of employees, repayment of loans taken by HMT from public sector banks and a working capital of Rs 100 crore to be released in three installments.
Kalka MLA Latika Sharma said they were making all efforts to ensure HMT's survival. "Something has to be done. But we will not allow its closure and are pressing the case before the CM as well," she said.