The O'Farrell government will not rule out selling millions of dollars worth of public housing at prime sites in inner Sydney after a decision to force out tenants in 300 harbourside properties.

The opposition and Sydney Lord Mayor Clover Moore warned public housing in suburbs such as Redfern, Balmain, Glebe, Surry Hills and Woolloomoolloo is at risk as the government sells homes to reverse a deficit in the public-housing system of $330 million a year.

Community Services Minister Pru Goward said on Wednesday 293 public-housing properties at Millers Point, The Rocks and Gloucester Street would be sold in the next two years.

The sale includes 206 heritage-listed homes at Millers Point, where residents have long feared the government wants to gentrify the area to support the nearby Barangaroo development.

Ms Goward said the properties would be sold because of the high cost of maintenance, a significant amount needed to bring the properties to an acceptable standard and the ''high potential sales values''.

The sale is expected to raise hundreds of millions of dollars, which the government says it will reinvest into the social-housing system. Some Millers Point homes were sold under the Labor government five years ago at an average of $1.3 million, and the government hopes this sale will fetch more.

Ms Goward said the government recognised some residents had lived at Millers Point for decades and specialist teams would help move them.

Department of Family and Community Services secretary Michael Coutts-Trotter said the homes to be sold were in a ''very, very expensive area of Sydney'' and the sale would free up a large amount of money for reinvestment in social housing.

Asked if Ms Goward planned to sell other high-value, public-housing properties in inner Sydney, a spokesman said she was ''not prepared to rule [it] out'', adding ''no decisions have been taken by the government to sell any of those other properties''.

But the Opposition spokeswoman for family and community services, Linda Burney, said the sale sent a message to inner-city public-housing tenants that ''this government could well sell off your properties because they want to make a buck out of it''.

Cr Moore slammed the sale as ''Barangaroo-driven'' - a claim rejected by Ms Goward.

''All public housing tenants in inner-city properties are now put on notice that if the value of your home goes up, the government is going to put you out of your home,'' Cr Moore said.

About 57,000 families are on the public-housing waiting list in NSW.

A government report to a recent parliamentary inquiry said the public-housing system has operated at a deficit since the early 1990s, equating to about $330 million each year. During the past decade, more than 9000 properties have been sold to fund replacements and maintenance.

Affected public-housing tenants packed the gallery during debate on the issue at Parliament on Wednesday.

Sydney MP Alex Greenwich called for a halt to the proposed sales and accused the government of ''social cleansing''.

Shelter NSW's executive officer, Mary Perkins, said the announcement contained little detail about how the money would be used to address long housing waiting lists.

She also expressed concern over ''the geographic divide happening in the city, between these areas [that] are for rich people and these areas [that] are for poor people''.