The reef will be the third of its kind in New South Wales and is expected to further cement the Hastings' reputation as a tourism mecca.

Minister for Primary Industries Katrina Hodgkinson made the funding announcement during a visit to Port Macquarie yesterday, selling the project as a win for local tourism, fishing and the environment.

"This will be an absolutely fantastic asset for the city of Port Macquarie," Ms Hodgkinson said.

The artificial reef will be of similar design to a man-made reef in Sydney where large concrete cubes are dropped into the ocean in clusters where they can form up to 800 cubic metres of new reef.

"Once constructed, the reef will in a very short time develop into a complex reef habitat supporting a diverse fish community, which will attract many iconic fish species including Spanish mackerel, cobia, pearl perch and snapper," Ms Hodgkinson said.

"The Port Macquarie region is already an incredibly popular fishing destination for recreational fishers and this new off-shore artificial reef will only add to that popularity."

Ms Hodgkinson said both local councils and state MPs were invited to submit a reef proposal for their region. Member for Port Macquarie Leslie Williams, she said, submitted a very strong proposal highlighting why the Hastings, from both a tourist and environmental perspective, would be the ideal location.

The location of the artificial reef will be determined after an environmental impact statement considers the biological and ecological impression of the structure on the existing landscape. Spokesman for the Department of Fisheries Heath Folpp said thorough stakeholder engagement and consideration of the environmental and social impacts will be an important part of the process in choosing the right location.

"This area is a great destination for fishing but does not have an enormous amount of offshore reef," Mr Folpp said.

The reef will be positioned up to five kilometres offshore and up to 30 metres below sea level. Up to 40 purpose-built concrete reef units will be placed into the ocean in clusters where new fish and plant habitats will flourish. The artificial reef becomes fully functional within two years.

The project is being fully funded by the revenue generated by recreational fishing licence fees, which to date, has funded more than $130 million worth of projects across the state.

A similar reef is planned for the waters of Shoalhaven Heads on the state's south coast.