Three tiny islands off the coast of WA have resulted in the Commonwealth relinquishing $2 billion worth of gas royalties to the state government.

The "islands" are simply rocky outcrops in the Browse Basin that sit only a metre above sea level at high tide, however their discovery during a satellite sweep of the area last year has led to a redraw of the Australian Marine boundaries which means most of the Scott and Seringapatam Reefs belongs to WA.

The discovery has led to the Commonwealth signing over 65 per cent of royalties to the WA government.

Federal minister for industry Ian Mcfarlane signed over the signific ant portion of the gas fields to WA Mines and Petroleum minister Bill Marmion at a ceremony in Perth this week.

"Congratulations to you and for the diligence of my department, Geoscience Australia, in discovering you were entitled to 65 per cent of this gas," McFarlane said.

"This was an oversight by the previous government [which] failed to recognise these rocks, and therefore this area, as being rightfully in the possession of the West Australian Government."

It is expected the Browse Basin gas field will net the WA government $2 billion over the life of the project.

Marmion said the WA government had only expected to make a small percentage of royalties from the project.

"It is a bit like winning lotto, $1.5 billion that you didn't expect you were going to get," he said.

"We were seriously looking at getting about 5 per cent of the Torosa field, so it is really great to say we have got 65 per cent, you got 35 per cent.

"Whilst we probably won't get it for five to 10 years, it is something you can look forward to – the Treasurer will be looking forward to it coming into his coffers."

Royalties earnings in WA have plummeted in the past 18 months due to the significant fall in the price of iron ore.