A wind farm zone south of Sydney will be two-thirds its original proposed size and further offshore to protect little penguins, rocky reefs and the southern right whale.
Climate Change and Energy Minister Chris Bowen confirmed the zone stretching along the NSW Illawarra coast on Saturday, officially declaring it the fourth in Australia.
The government said the zone would be 1022 sq km - reduced by a third - and 20km rather than an initially-proposed 10km out to sea.
It would exclude significant environmental areas including a biologically-important one for the little penguin, the shelf rocky reef key ecological feature and the southern right whale's migration and reproduction.
The project would be able to power 1.8 million homes with up to 2.9 gigawatts of energy rather than a previously proposed 4.2 gigawatts.
"We have sorted through legitimate issues, legitimate concerns that have been raised on behalf of the community," Mr Bowen told reporters on Saturday.
"We have sorted out misinformation and disinformation.
"On most days, you will not see the wind turbines at 20km away.
"It puts the Illawarra at the centre of Australia's renewable energy future."
The zone's size reduction followed extensive community consultation with local leaders, industry, unions, Indigenous people, community groups and individuals, the government said.
Feasibility licence applications for offshore wind projects in the Illawarra zone will close on August 13.
The zone is expected to create 1740 jobs during construction and 870 ongoing roles.
Its planning attracted criticism from some in the community on the basis it threatened whales and would be an eyesore.
Member for Cunningham Alison Byrnes said amending the zone to place it 20km from the coast was a "sensible compromise" that reflected majority opinion.
An extensive study and approvals process would follow the zone's declaration, she said.
"My expectation is that all proponents not only make sure their projects meet the highest environmental standards but also incorporate local content, including the use of locally produced steel, and local workforce and develop a strong benefit-sharing scheme so our community meaningfully benefits," Ms Byrnes said.
Climate Council policy and advocacy head Jennifer Rayner said the Illawarra - long a manufacturing powerhouse - would continue to thrive for generations with affordable and clean energy produced in the region.
"Offshore wind will be an important part of Australia's clean energy grid because it provides reliable, steady renewable energy right around the clock," Dr Rayner said.
University of Wollongong Energy Futures Network director Ty Christopher hailed the offshore wind project as a positive step for the region.
"By working together as a community, sharing our concerns for the environment to co-design a clean energy future for the region, we have the ability to deliver positive outcomes for our oceans, our communities and our local economy," he said.
Surfers for Climate chief executive Josh Kirkman said the reduced size of the zone helped allay many people's concerns.
The Australian Conservation Foundation also welcomed it, saying large-scale renewable energy projects were vital for the Illawarra, while the Electrical Trades Union and Maritime Union of Australia said the zone's declaration was a win for workers, industry and the future.
The states are locked in a race for "first wind", with Mr Bowen in March declaring a finalised offshore wind farm zone near western Victoria - one of six areas earmarked for projects around Australia's coast.
The Southern Ocean zone, 15km to 20km off Victoria's coast near industrial Portland, was also downsized to 1030 sq km - one-fifth of its initially drafted size - to give the right of way to whales.
Closure dates are in place for all of Victoria's coal-fired power stations, including one of Australia's biggest - Yallourn in Latrobe Valley - in 2028.
