A fuel tanker travelling south from Ulladulla collided with three northbound vehicles and exploded.

The collision occurred at 4.50pm near Pebbly Beach Rd, on the edge of Cockwhy Creek.

The tanker had gone nose first off the embankment down a gully at East Lynne, 20 kilometres north of Batemans Bay

The parents of the children were rescued from their vehicle but received burns to 80 per cent of their bodies and were airlifted to Sydney.

Batemans Bay Highway Patrol supervisor Sergeant Rob Young said the driver of the truck was deceased.

He said the two adults in the main vehicle were retrieved, but the two children were dead.

"They (the parents) have severe burns," Sgt Young said.

A NSW Ambulance spokesman said one adult was airlifted to Royal North Shore and the other was airlifted to Concord Hospital from the crash site.

"It was one of the worst accidents I've ever seen over 20 years in the highway patrol," Sgt Young said

"It's the worst I've ever seen."

Smoke could be seen from the accident from 10kms south on the Princes Highway.

Snowy Hydro SouthCare Helicopters and Westpac Rescue 26 from Wollongong airlifted the patients.

The spokesman said one female in her 50s was transported by road ambulance to Batemans Bay Hospital with suspected spinal injuries, while three other adults were transported to Milton-Ulladulla Hospital with minor burns and minor injuries.

"There are three vehicles at this stage that we can see," Sgt Young said at the scene at 7pm last night.

Traffic travelling on the highway was diverted to dirt road for the evening.

Five Highway Patrol units from Ulladulla, six from Batemans Bay and an array of other police officers attended the scene.

Rural Fire Service and NSW Fire Brigade firefighters, including Hazmat attended, totalling about 25 firefighters.

Crash Investigation from Lake Illawarra, Crime Scene officers and the coroner were all called to the scene last night.