New South Wales Police Force said divers had recovered six bodies from the scene and an investigation was under way to identify the victims and determine the cause of the crash.
Six people including the pilot were on board the plane when it crashed off Jerusalem Bay near Cowan, north of Sydney, at around 3.10pm (4.10am GMT) on Sunday, police said.
Local reports said four Britons were among the dead.
The Foreign Office was unable to confirm any details of the crash but said British officials are in contact with authorities in Sydney.
A spokeswoman said: "Officials from the British consulate are in contact with local authorities in relation to a sea plane accident near Sydney.
"We stand ready to provide consular assistance."
New South Wales Police Force and the Australian Transport Safety Bureau (ATSB) are investigating the cause of the crash.
The ATSB said the single-engine plane operated by Sydney Seaplanes is reported to have "sunk rapidly" after hitting the water.
"At around 3pm this afternoon, a DHC-2 Beaver Seaplane, VH-NOO, operated by Sydney Seaplanes was flying in the vicinity of Jerusalem Bay (near Cottage Point)," the bureau said.
"It is understood that there was one pilot and five passengers on the aircraft on a return flight to Rose Bay, Sydney Harbour.
"The sequence of events leading up to the accident are not yet understood, however following the impact with the water, the aircraft is reported to have sunk rapidly."
9News reported that the group had flown to a restaurant at Cottage Point and was returning to Rose Bay in the city's eastern suburbs.
Myles Baptiste told the broadcaster he saw the plane flying towards him about 500 metres away when it hit the water.
"It made a tight right-hand turn and as it actually turned around, the wings dipped and it nosedived straight into the water," he said.