Government officials have admitted they suggested an Australian cruise operator could replace local staff with foreigners to survive under proposed Federal Government laws.

The Coalition has a bill before Parliament to deregulate the industry, paving the way for foreign-flagged ships to spend more time in Australian waters.

Bill Milby from North Star Cruises, which runs a luxury passenger ship along the Kimberley Coast, has previously claimed Government officials told him to consider hiring foreign crew to survive under the new laws.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 2 minutes 43 seconds 2 m 43 s Opposition calls for an apology to North Star representative after officials' admission ( Tom Iggulden ) Download 5 MB

"That suggested advice was that we re-flag ... take [the ship] away to a flag of convenience ... lay off our senior crew... put on a foreign crew and bring it back," he told a parliamentary hearing.

"That was how we could compete with the foreign ships that would come down and operate on our coastline."

Prime Minister Tony Abbott said Mr Milby's account was "just not true" and Deputy Prime Minister Warren Truss told Parliament it was "inaccurate."

"I have spoken to the secretary of my department who has assured me that the comments ... are inaccurate and do not reflect accurately the words of the conversation entered into by the staff member concerned," Mr Truss said in Question Time.

But the government officials, Judi Zilkie and Michael Sutton from the Department of Infrastructure, have admitted the issue was raised with Mr Milby.

Asked in the same parliamentary hearing if she "discussed with him [Mr Milby] the option of going offshore", Ms Zilkie replied: "Yes."

But she said while they "did talk about the various options" she denies she "provided advice that he should take that action."

Proposed changes will threaten local shipping companies: Milby

Mr Milby made it clear he was angry with Mr Abbott and Mr Truss, not the departmental officials.

"I'm not trying to pick a fight with the Prime Minister or the Deputy Prime Minister, but I don't like being told I'm lying," he said.

"I take offence of that ... I take very strong offence of that."

Labor's infrastructure and transport spokesman Anthony Albanese is demanding a retraction.

"The Prime Minister and the Deputy Prime Minister both owe Mr Milby an apology. Warren Truss clearly has misled Parliament," he said.

Mr Albanese said the legislation, which is currently being considered by the Senate, should be withdrawn.

"When the Government introduced this legislation, they said it was about Australia's national interest," he said.

"Quite clearly it's not. Australian-based ships won't be able to compete with foreign-based ships if they're allowed to pay foreign wages."

Mr Milby said the changes would threaten local shipping companies and the tourism industry.

"We don't want to hire foreign crews for an Australian operation that takes tourists to iconic locations in Australia," he said.