It took the city almost 30 years, from 1971 to 2000, to grow from 3 million to 4 million people but only half that time to pile on its next million.

Official Australian Bureau of Statistics population figures released on Thursday said the population of Greater Sydney, which includes the Blue Mountains and Central Coast, reached 5,005,400 at the end June 2016.

That was an increase of almost 83,000 on the previous year, and the city's fifth largest annual population increase in absolute terms since 1901.

Sydney absorbed 78 per cent of NSW's total population increase in 2015-16 and the metropolitan was host to the 10 districts with the state's largest population increases.

The Cobbitty-Leppington neighbourhood in the city's south-west led the way, adding 3338 people last financial year. It also had the state's fastest rate of population increase - 27 per cent.

High-density suburbs in Sydney's inner south were also experienced significant population increases including Waterloo-Beaconsfield, which rose by 2358 people in the year, and Mascot-Eastlakes which added nearly 2000 people.

Sydney's population grew by 1.7 per cent last financial year while the rest of NSW grew by 0.8 per cent.

Terry Rawnsley, an economist at consultancy SGS Economics and Planning, said Sydney's population rise is being driving by the city's robust economic growth.

He estimates the Sydney economy grew by 4.5 per cent in 2015-16, the third highest rate on record.

"The growing economy needs more labour to fill jobs and that is drawing people to Sydney," Mr Rawnsley said.

"Also, as often happens during periods of high economic growth, there is baby boom underway."

Sydney will reach a population of 6 million by 2028 at current growth rates, he said.

While Sydney is Australia's first city to reach the 5 million milestone, Melbourne is closing the population gap.

It had the largest population growth of all capital cities last financial year, increasing by nearly 108,000 people to reach 4.64 million.

On current trends, Melbourne will overtake Sydney as Australia's biggest city in the mid-2050s. By then, both cities will be home to more than 8 million people.

The state capitals grew at a much faster rate than the rest of the nation - together they accounted for 82 per cent of Australia's population growth in 2015-16.

Just two cities - Sydney and Melbourne - absorbed more than 56 per cent of the nation's population increase in that period.

Five of the country's 10 largest local growth areas in 2015-16 were in Melbourne, three were in Perth and two were in Sydney.

Broken Hill had the state's biggest population decline - a net loss of 310 people.

The influence of the downturn in mining was evident in the population figures, with eight of the nation's 10 local areas that experienced the highest population declines situated in mining areas.

The biggest population declines were in Mount Isa in Queensland (-510 people) and Leinster-Leonora in Western Australia (-330).