While the leak has been contained within the harbour and Hunter Water has repaired the sewage main, Nelson Bay Beach and the foreshore along Victoria Parade remain off limits.

Beaches were expected to be reopened on Thursday.

A Port Stephens Council spokesperson said they were waiting on water quality test results to determine when it would be safe to reopen the beaches.

"The community is advised to avoid swimming in the area."

The spokesperson said that the sewage main was damaged, and began leaking in the harbour, during excavation works on Monday at nearby Teramby Road. Up to 225 kilolitres of sewage was estimated to have leaked from the main.

The beaches from d'Albora Marina to Fly Point, including the marina and Splash Waterpark, were immediately closed.

Imagine Cruises owner Frank Future said that he had never experienced such a stench in more than 30 years operating in Nelson Bay.

"I was 200 metres away and the smell was overpowering. It was pleasing, however, that the authorities responded quickly and brought in the heavy equipment to flush out the drains and alleviate the stench. I thought they may have closed the entire marina but we weren't affected at all."

Splash Waterpark lifeguard Indi Kelly described the closure as "disappointing", but added that she was hopeful the incident would not negatively impact on trade too much.

"A lot of people have been rescheduling bookings hoping to get back in later in the week. Monday morning was very hectic letting people know. It's very disappointing but it is what it is."

Trudie Campey, from Feet First Dive at Nelson Bay which operates scuba diving experiences around the bay, said they were fortunate to avoid any cancellations on Monday and Tuesday due to the tides.

"Fortunately for us on the two days the beaches have been closed we had no bookings due to the high morning tides. Had the high tide been in the middle of the day then yes we would have had been adversely affected."

A Hunter Water spokesperson said on Tuesday that the sewer repair and clean-up of the site had been completed by Hunter Water staff by 2pm on Monday.

"Port Stephens Council is carrying out water quality sampling and testing so they will make the decision about reopening beaches when it gets the results of those tests."

A NSW Environment Protection Authority spokesperson said the organisation had been informed of a sewer break at Nelson Bay by Port Stephens Council on Monday morning.

"EPA officers attended the site on Monday and the matter is now under investigation."

SafeWork NSW and Fire and Rescue NSW were also notified on Monday.

Following a tumultuous winter wracked by the coronavirus pandemic, many Port small business and tourist operators had enjoyed a strong October school holiday period and solid bookings for the start of the Christmas-New Year break.

However, this was soon interrupted with a new COVID cluster on Sydney's northern beaches and a region of the inner west [Berala], which saw many accommodation bookings to Port Stephens from those areas cancelled.

These cancellations were followed by a bout of wet weather.

Mr Future said that it was a shame that the beach closures had coincided with the start of some glorious weather.

"There are still plenty of people around the town but of course we must all remain vigilant and follow all the health protocols to ensure we stay safe."

The tourism industry is one of the mainstays of the Port Stephens economy, pouring in millions of dollars through domestic travellers alone. It was also recently revealed by travel search engine Kayak that Nelson Bay had became one of the state's top 10 most searched destinations in 2020.

Between March and November 2020, the Bay came up as the number two most searched destination.