The plane went down in the Hawkesbury River near the suburb of Cowan 50km north of Sydney, said police in New South Wales state.
Acting Superintendent Michael Gorman told reporters the single-engine aircraft was lying in 13m of water.
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"Police divers are on scene and three bodies have so far been recovered," police added in a statement. "The recovery operation continues".
There were no details on the identity of the occupants and investigators did not yet know why the plane crashed.
Debris and an oil slick was spotted by a rescue helicopter after the crash, with local media reporting the aircraft was from scenic flight company Sydney Seaplanes.
Sydney Seaplanes is popular with celebrities and recent passengers have included Pippa Middleton, sister of the Duchess of Cambridge, and husband James Matthews during their honeymoon in Australia.
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A spokesperson for the Australian Transport Safety Bureau told AFP the aircraft was believed to be a DHC-2 Beaver Seaplane on a return flight to Rose Bay in Sydney Harbour.
The accident came just hours before Sydney Harbour was set to be lit up in a spectacular fireworks display to welcome in the new year.
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