A crane operating off a barge at Milsons Point has toppled into Sydney Harbour, with stunned witnesses reporting a loud bang, and seeing a cable fly off into nearby Luna Park.

Police are on the scene, and Safework New South Wales confirmed there were no injuries.

One witness said he "thought a bomb had gone off" while others reported seeing a cable go flying through the air and come to rest on Luna Park's iconic smiling entry face.

A cable snapped off the semi-submerged crane, was flung across the water and landed on the Luna Park face. ( ABC News: Nadia Daly )

Luke Bayly saw the incident unfold about 1:00pm.

"I was sitting on the other side of the harbour," he said.

"I heard a huge bang. I looked up and I saw the crane splash into the water.

"It was a huge bang, it startled me, I thought a bomb had gone off."

A crane fell into the harbour at Milsons Point near the Luna Park ferry wharf. ( Twitter: @Bayly )

Witnesses said they heard a loud splash as the machinery fell into the harbour.

Boats on the harbour are being diverted around the area of water where the crane fell.

It was being used for the construction of the Milsons Point wharf expansion and several workers were on the barge at the time of the incident.

Safework NSW said it was launching an investigation, while CFMEU state secretary Brian Parker said it was a stroke of luck that there were no deaths.

"If this happened on another day, it could have been a couple of fatalities," he said.

Newlyweds under the Harbour Bridge with the fallen crane in the background. ( ABC News: Antonette Collins )

"We've got a large wire rope that has snapped, with a hook on the end of it, that has ended up right through the entrance of the head at Luna Park."

Barnui Chua, who is visiting from Malaysia, said he was taking a photo of his son when the crane crashed.

"One minute it was there, the next it was gone," he said.

"Everyone went silent and people were just looking on going 'did that just happen?'"

Margaret White, from New York, was having lunch at a harbourside restaurant and saw the machine fall.

"All of a sudden we were looking out, and I said 'oh my God' and the crane just came crashing down," she said.

"A man was on the back and you saw him just jump ... but it didn't look like anyone was hurt.

"Everyone in the restaurant jumped when it crashed."

The crane was working near the Sydney Harbour Bridge. ( ABC News: Nadia Daley )

It is the second crane collapse in Sydney this month, after another fell into an apartment building in Wolli Creek, forcing residents to be evacuated.

Crew from the company Waterway Constructions are currently at the site.

The area is opposite the CBD and adjacent to the Harbour Bridge.

Luna Park, a popular tourist attraction in the city, said it had no comment to make on the incident.

Mr Parker said the union would launch its own investigation.

"We want to have a look at the records, that they've done all the maintenance.

"We want to see all the issues. We want to talk to all the workers involved."