The Australian Space Agency will be co-located with the Department of Industry, Innovation and Science in Civic from July 1, with former CSIRO boss Megan Clark at the helm.

The federal government set aside $41 million in last Tuesday's budget for the new venture including $26 million of seed funding over the next four years to establish the agency, and $15 million over three years to provide grants to "strategic" space projects.

Jobs minister Senator Michaelia Cash said the agency would help Australian businesses win a greater share of the US$345 billion global space market.

"Currently Australia has around 0.8 per cent of that," she said.

Senator Cash said an expert reference panel believed Australia could increase the value of the domestic space industry from about $3-4 billion a year to $12 billion per annum by 2030.

Around 10,000 Australians are currently employed in the space industry, with about

2000 of those jobs in the ACT.

Senator Cash said the expert reference group had estimated by 2030, the industry could create around 20,000 "high-paying" jobs.

Budget papers show the Industry department will pick up an extra 167 positions this year, partly as a result of the creation of the agency.

Senator Cash said the agency would be based in Canberra for at least the first six months, while Dr Clark determined "the most strategic location" for the agency.

“I have been absolutely delighted with the level of interest that’s been shown by states, by industry, by researchers and by academia and now it’s time for us to go out and talk to them about why they are the most strategic place to locate the Australian Space Agency," Senator Cash said.

However Dr Clark told the ABC she believed Canberra was the most logical location for the new agency.

"We need to engage internationally and also to coordinate nationally and part of that activity best to be centred in Canberra," she said.

Last year's review of Australia's space capability showed there was a considerable level of private and public space infrastructure already in Canberra,  including Optus' ground station in  Hume, the Canberra Deep Space Communication Centre, and the National Computational Infrastructure super computer at the Australian National University.

Other infrastructure includes the Advanced Instrumentation and Technology Centre and EOS laser ranging telescope at Mt Stromlo, and the Concurrent Design Facility and Falcon telescope at UNSW Canberra.

ACT Chief Minister Andrew Barr said Canberra was the "natural home" for the headquarters for the new agency.

The territory is already in a partnership with South Australia and the Northern Territory to build capability in the space industry, with "a significant chunk" of the existing jobs already in Canberra.

However Mr Barr said it would be "counterproductive" for the ACT to become embroiled in a bidding war.

“There are some parts of the space industry the ACT has no capacity in and others where we are clearly head and shoulders above the rest of the nation and for other jurisdictions they bring unique capabilities as well," Mr Barr said.

"Clearly the ACT is not going to win a bidding war against jurisdictions that have budgets that are 15 or 20 times larger than us but we have capability in areas they never will have and so that will be our advantage.

"Yes there’s elements of competitive federalism at play, but cooperative federalism will get the best outcome for an Australian space agency where each state and territory is able to bring their capability to the table and then presumably the sum of the parts creates something quite special for our country."

Opposition Leader Alistair Coe said he would write to Prime Minister Malcolm Turnbull urging him to establish the agency in Canberra.

"Given Canberra’s significant history and growing space industry, the ACT is an obvious choice for a space agency," Mr Coe said.

Director of UNSW Canberra Space Professor Russell Boyce agreed the logical choice for headquarters for the agency was Canberra.

"Canberra has the highest concentration of decision makers, of agencies, the Australian Defense Force, the highest concentration of diplomatic community, which is important for international engagement and a thriving industry sector already," Professor Boyce said.

"That whole package is not found anywhere else in the country. And for those reasons, Canberra is not just the logical, but really the only place the headquarters can be."