The state government will sell the Powerhouse Museum in Pyrmont to raise about $200 million for the museum's relocation to Sydney's western suburbs.

Premier Mike Baird and Arts Minister Troy Grant announced the relocation of the museum to Parramatta and flagged their plans to sell the building and its prime central Sydney land on Thursday.

For sale: the Powerhouse Museum will be relocated in western Sydney.

"Every dollar from the sale of the site will come towards this new museum. It's a very strategic site right next to the city, with a good opportunity for renewal," Mr Baird said.

Mr Baird said they expected the Pyrmont site to reap between $150 and $200 million and that it would be developed into apartments.