Cruise ship passengers are welcomed into Sydney with sweeping views of the harbour bridge and Opera House but under a new plan, the semi-industrial backdrop of Port Botany could be the first glimpse they get of the city.

Luxury cruise liners that are too big to fit under the Sydney Harbour Bridge won't berth at Garden Island after the federal government advised it would be too challenging to share the space with the navy.

Prime Minister Malcolm Turnbull said navy ships would "always have priority" on Garden Island.

"We need it (the navy) to keep Australians safe and Garden Island is a naval base and has been for about 150 years and will remain so," Mr Turnbull told reporters in Sydney on Sunday.

Garden Island was flagged as a potential solution to the cruise ship crisis last year in a report by former NSW Liberal leader Peter Collins.

Instead, the NSW government will look at Molineaux Point and Yarra Bay in Port Botany as possible solutions to the harbour's capacity constraints, NSW Maritime Minister Melinda Pavey said in a statement on Sunday.

The state government's cruise ship plan found berths at Circular Quay and White Bay are nearing capacity with big cruise ships over 51 metres increasingly replacing smaller ships which are unable to pass under the Sydney Harbour Bridge to dock at White Bay.

Some mega cruise ships are unable to dock at the Overseas Passenger Terminal in Circular Quay because their width exceeds safe harbour traffic management, the report says.

"Our state has been the victim of its own success when it comes to cruise with existing facilities such as the Overseas Passenger Terminal and White Bay Terminal struggling to keep up with significant growth in passenger and ship visitation," Ms Pavey said.

While the government investigates Molineaux Point and Yarra Bay as potential solutions, it will consider using Hayes Dock in Port Botany as an interim cruise terminal solution.

It will also look at maximising the number of passengers accessing the Overseas Passenger Terminal through a new booking system.

Cruise ships that can fit under the harbour bridge will continue to dock at White Bay.

The plan has received criticism from Australia's peak tourism industry body which said it was "disappointed" by the decision to rule out Garden Island.

Tourism and Transport Forum chief executive Margy Osmond said the visitor experience aboard cruise liners started with the "colourful" Sydney harbour arrival.

"The ingredients of this quintessential Sydney experience should not be taken lightly," Ms Osmond said in a statement on Sunday.

"For many cruise companies, the vital destination in Australia is Sydney - if they cannot get the access they need in Sydney they will not come and therefore will not visit a wealth of other Australian regional destinations."