Shipping company CSL has decided to send the vessel to Singapore, where the crew will be laid off and the ship redeployed to international routes.

The 16 crew members have refused to leave CSL Melbourne since mooring in Newcastle last week. They have begun wearing T-shirts and have raised banners saying they were "sacked for being Aussie".

Australia's industrial umpire on Wednesday ruled the industrial action illegal and has ordered the remaining crew members to leave the ship. The case will go to the Federal Court if they do not comply.

It follows a recent stand-off in Victoria's south-west where a sacked crew refused to leave Alcoa's MV Portland for two months until the company hired 30 security officers to forcibly remove them in a midnight raid.

The Maritime Union of Australia has launched heated political attacks over the recent sackings. It is pressing the federal government to support local jobs and revoke special licences that permit the use of low-paid foreign crews on domestic shipping routes, which Labor and the unions have branded "WorkChoices on water".

The CSL Melbourne cargo ship has been running alumina on an Australian east-coast route for five years for a Rio Tinto subsidiary, Pacific Aluminium.

The company received a "temporary coastal licence" from the Turnbull government in the past month, which permits the use of a foreign-crewed ship for the voyage.

The International Transport Workers Federation said CSL Melbourne would now be replaced on its coastal route by a Liberian-flagged ship operated by a Greek company, with Filipino crew.

Deputy Prime Minister Warren Truss said temporary licences were a part of Labor's shipping rules introduced in 2012, which allowed foreign vessels to operate domestically when no Australian operators were seeking to carry the cargo.

"And that is exactly what has happened in this situation," he said.

"The two recent ship withdrawals were entirely commercial decisions by the two operators – Alcoa and CSL – having determined that it is no longer viable to operate the vessels in coastal trade. In neither case did an Australian operator object to the issuing of the temporary licence."

Mr Truss said Labor's system had led to a decline in Australian shipping, leaving the industry uncompetitive and shedding jobs. He said the government intended to bring coastal shipping reforms back to Parliament this year.

Calling it a "critical time for Australian shipping", the seafarers on board CSL Melbourne said they felt compelled to make a statement and have accused the government of helping destroy an industry.

"Many of us as Australian seafarers will never work again as companies like Pacific Aluminium and the Turnbull government set out to destroy our industry," the statement said.

"Amongst us, there is 113 of years of seagoing experience thrown on the scrap heap and replaced by a cheap, highly exploited foreign crew."

CSL said the decision to reassign the ship to international trade was due to the recent loss of a long-term contract. The vessel had been deemed too large to service Pacific Aluminium's Tomago smelter exclusively after the nearby Kurri Kurri smelter was closed two years ago.

"CSL Australia is working to reassign crew members from CSL Melbourne to other vessels in its fleet," a company spokesman said.

"Regrettably, some positions are likely to be made redundant."

The spokesman said CSL Australia would ensure all affected crew were paid full entitlements.