Prime Minister, Julia Gillard has said the Federal Government may take over funding of local hospitals amid a new row over state health budgets. 

The row erupted following a feud between the Commonwealth and the Victoria State Governments over a cut of $107 million from the state's allocation of health funding. 

The funding cut saw hospital bed closure

According to Ms Gillard the funding adjustment was based on revised population figures. And in a letter to the Victorian Premier, Ted Baillieu, Ms Gillard said the money will now be distributed direct to the hospital networks and would bypass the Premier altogether. 

"What we intend to do to balance the books is to cut $107 million off other sources of funding to the Victoria Government," the Prime Minister said. 

According to Ms Gillard the Victoria Government will lose $55 million in reward funding that it would have received under national economic reforms, with the remaining money to be recouped through cuts to other grants. 

However, Mr Baillieu described the population figures as "dodgy" and said that the $107 million is only a short term political fix. 

Speaking to Fairfax Radio Mr Baillieu said: "The $107 million only covers the financial year, so from July 1st the cuts that were previously announced will resume and there is a further $368 million of cuts in Victoria in the (forward estimates)".

The problem is also threatening to spread to other states including Queensland, which has demanded that the Commonwealth reverse a previous cut of $103 million in its allocation. 

Prime Minister Gillard has forwarded on similar warning letters to all state premiers telling them that they will suffer the same fate as Victoria if they engage in "game playing" over health funding.

ABC news are reporting that Tasmanian police have arrested one anti-logging activist during a protest.

Activists are protesting against the felling of a forest marked for protection in central Tasmania.

The group known as 'Still Wild Still Threatened' said a female activist chained herself to a gate on a forestry road at Butler's Gorge, which is part of an area nominated by the Federal Government for World Heritage listing.

The protest group's spokeswoman, Miranda Gibson says 11 police officers turned up at 3pm.

"So far they have removed the person from the front gate who has been arrested and search and rescue are currently attempting to remove a tree sitter as well," she said.

It's understood the tree sitter is by the side of the road, attached to a structure that is blocking the road to halt the logging.

However, a spokeswoman fro the Tasmanian police could not confirm whether anyone's been arrested.

Ms Gibson said the protesters were trying to catch the attention of Federal Environment Minister, Tony Burke. They held a banner saying 'Tony Burke you nominated these forests, now protect it'.

Gibsons has been staging a tree sit-in at Tyenna since December 2011.

Minister Burke says he is not in a position to intervene.

"I can intervene when an area is a World Heritage Area and I've put forward those forests to the World Heritage Committee," he said.

"The World Heritage Committee will meet later this year and if they put it on the World Heritage list at that point it becomes a World Heritage Area.

"Up until that point there's not a Federal power to intervene."

The Tasmanian Government says existing harvesting operations are being performed in a small number of coupes in the area nominated for protection. 

A spokesman said that the operations were going ahead to meet contractual wood supply requirements until logging schedules can be re-directed to alternative areas.