Waste operators have been digging up landfill in Sydney and trucking it to cheaper tips in Queensland to cash in on incentives supposed to encourage recycling.

The environmental regulator has told two Sydney landfill operators to stop exhuming waste and has said it will change licence requirements to stop others doing the same.

Waste not, want not: Plans for landfill.

The practice, which amounts to digging up landfill and reburying it elsewhere for no environmental benefit, has been triggered by the widening gap between the cost of dumping waste in NSW and in Queensland.

Waste sent to Sydney landfill now attracts a $95.20 levy per tonne. But if some of what is sent is diverted from the ground, such as recyclable materials, operators receive a rebate on that when it leaves the site.