Former prime minister Scott Morrison's decision to reject a gas exploration licence off the NSW coast has been formally quashed by a Federal Court judge, who agreed it was "infected by apprehended bias".

Mr Morrison announced in late 2021 that his government would reject a two-year extension of the exploratory drilling licence, PEP-11, which covers about 4,500 square kilometres offshore from Manly to Newcastle.

It was later revealed this decision was made at time when Mr Morrison had sworn himself into the portfolio of then-resources minister Keith Pitt, circumventing Mr Pitt's intention to grant the extension.

Asset Energy, which owns an 85 per cent interest in PEP11, sought orders against the Commonwealth quashing the decision, alleging it was affected by bias in the form of predetermination.

Earlier this month, the Albanese government and Asset Energy agreed to end the case and vacate Mr Morrison's decision, paving the way for a future decision on the project to rest with a joint authority comprising the federal and NSW governments.

The Federal Court still needed to determine whether it had the power to make the orders sought and whether it was appropriate.

If it had progressed, the case likely would have involved argument about whether Mr Morrison was validly appointed as the responsible minister.

But in a written decision, Justice Darren Jackson said it was not appropriate to enter into that matter.

"The parties now submit that it is unnecessary to resolve that issue. I agree that it is unnecessary," he said.

"Moreover, the court should not address the validity of Mr Morrison's appointment, as it raises questions of the construction and application of the Constitution which need not be answered in order to do justice between the parties."