The Australian government has approved a massive oil project in the Timor Sea, involving the world's biggest offshore floating oil production facility.

Federal Resources Minister, Warwick Parer, issued a production licence for the Laminaria and Corallina oil fields, which are believed to contain 200 million barrels of oil.

Australia's Woodside Petroleum and its joint-venture partners will develop the two fields.

Senator Parer says the project will improve Australia's oil self-sufficiency by 20-percent and improve the balance of payments by one-point-eight billion dollars a year.

He says Australia is under-explored for oil and the new project should change that. "It will encourage more exploration and development in Australia. One of the things I think over many many years there's been a tendency which I believe is quite incorrect to believe that Australia is really not very prospective from an oil and gas point of view. Now the thing is that compared with most other provinces around the world Australia is grossly unexplored in regards to oil & this sort of thing will give a great impetus to that exploration."