Cruise passengers stranded off Vic coast

Tug boats are being dispatched to ferry home thousands of stranded cruiseliner passengers off the coast of Melbourne after the luxury ship suffered engine problems.

The Norwegian Star's propulsion system malfunctioned on Friday morning after it had disembarked from Melbourne, forcing it to bob without direction in waters 30km away from the city.

The ship has power and on board facilities are functioning, Norwegian Crusie Line said in a statement, and it's expected to be tugged back to Melbourne by Saturday afternoon.

The cruise was headed to New Zealand after disembarking from Sydney on Monday.

NCL have apologised to passengers and offered full refunds and 50 per cent off a future cruise.

"We thank our guests for their understanding and patience in this very unusual and unprecedented situation," NCL said.

After docking in Melbourne, passengers have been told they can stay aboard and continue on the cruise once the ship is fixed, or be given $350 credit to fly to Auckland.

"We expect the itinerary that commences in Auckland on February 18 to operate as originally scheduled," NCL said, but did not say when they expect the repairs to be completed.

The Australian Maritime and Safety Authority is monitoring the situation.

The Norwegian Star was built in 2001 and is able to carry 2348 guests and 1031 crew members.