Sydney's Powerhouse Museum will be moved to Parramatta from Ultimo and will feature a 30-metre-wide domed planetarium, the NSW Government has confirmed.

A lyric theatre and a creative design and fashion museum will be built on the current site of the Powerhouse Museum at Ultimo.

There will also be commercial and residential structures at the Ultimo site.

The move, which has caused controversy, will cost the Berejikilian Government $645 million to relocate the museum to Sydney's west.

Work on the Museum of Applied Arts and Sciences, which incorporates the Powerhouse Museum, will begin in 2019 and it is expected to open to visitors in 2023.

"It will be bigger and better than anything NSW has ever seen and will rival global cultural icons such as the London Science Museum and the Smithsonian Air and Space Museum," Premier Gladys Berejiklian said.

"It is so important that young people are excited and inspired by science, technology, engineering, arts and mathematics because the jobs of tomorrow will rely heavily on these disciplines."

Ms Berejiklian said an international competition to design the new Powerhouse Museum would open soon. The nearby Riverside Theatre in Parramatta will be upgraded too.

"This is about making sure arts is accessible to the whole community," Ms Berejikilian said, emphasising that Parramatta was the "geographic heart of Sydney".

'Victory for the people of Western Sydney'

The Sydney Business Chamber's Western Sydney branch said the relocation was "a victory for the people of Western Sydney".

"This is cultural justice for Western Sydney," said David Borger, director of the chamber.

"Our tax dollars have paid for Sydney's cultural institutions and it's about time one of them was located in the region where more than two million people live."

"I hope the critics of this move understand that the Powerhouse Museum has a universal collection on behalf of the people of NSW – not just an exclusive collection for the inner city community," he said.

The Government has only released a business case summary.

The Parramatta museum will feature the country's largest planetarium, with a domed planetarium expected to be 30-metres wide.

Other features include exhibition and public spaces, play areas and education labs focused on science, technology, engineering, arts and mathematics.

Barney Glover, the chairman of the Museum of Applied Arts and Sciences, said this was "arguably one of the most significant investments in the arts in the world this decade".