The tiny Pacific island nation of Palau created a vast marine sanctuary the size of Spain on Wednesday, banning fishing across the bulk of its waters to preserve the ocean for future generations.

At 500,000 square kilometres (193,000 square miles), the new sanctuary is one of the largest in the world and covers an underwater wonderland containing 1,300 species of fish and 700 types of coral.

Palau President Tommy Remengesau said the sanctuary, comprising 80 percent of the nation's maritime territory, would allow the ocean to heal after decades of industrialised fishing which has driven some species to the brink of extinction.

"A small island nation can have a big impact on the ocean," he said ahead of a ceremony Wednesday to officially sign off on the reserve.

"Island communities have been among the hardest hit by the threats facing the ocean. Creating this sanctuary is a bold move that the people of Palau recognise as essential to our survival."

The archipelago, part of the larger island group of Micronesia in the west Pacific, has a population of just 18,000.

The sanctuary will be phased in over five years, eventually leaving only a relatively small area of Palau's waters open to fishing by locals but not the foreign trawlers which dominate the Pacific industry.

The no-fishing plan prioritises tourism -- which contributes about US$160 million or 50 percent of gross domestic product annually -- over the tuna industry, which contributes around US$5.5 million a year.

Palau created the world's first shark sanctuary in 2009 and about one-third of countries have now followed suit, changing attitudes to the predator and helping curb demand for shark fin soup.

Conservation efforts are underway in the Pacific to create a network of marine parks across the region to ensure one of the world's last pristine ocean ecosystems is managed sustainably.

In 2012 the Cook Islands unveiled a 1,065 million square kilometre marine park while Kiribati and Tokelau have also declared huge protected zones.

New Zealand announced plans last month to create a marine sanctuary the size of France by 2016.