The announcement is part of major changes to COVID-19 restrictions for hospitality businesses announced by Premier Gladys Berejiklian on Wednesday.

As well as up to 50 people being allowed on a dance floor, the one person per four square metre rule will be cut to two square metres, with the exception of nightclubs. There will be no caps on the number of people allowed in the one venue as long as the two square metre rule is followed.

Standing in outdoor hospitality venues will also be permitted.

For Hunt Hospitality, which runs the Kent Hotel at Hamilton, Seabreeze Hotel at Port Stephens and New Lambton's The Duke of Wellington, the changes are a huge step towards pre-COVID times.

The Kent's maximum capacity outside coronavirus is 450. With current restrictions it is about 150, but from Monday that's set to increase to 300.

"We're absolutely delighted," Hunt Hospitality general manager Stephen Hunt said. "We're really happy with the way the government has handled this. There's been sensible, gradual improvement - not opening up and then shutting down again."

He said the dance floor ruling was a major advantage for The Kent, and would mean they could start putting on a DJ on weekends again.

"People will be dancing in the streets," he said. "We've actually missed it. Without the dancefloor, it's felt so lonely.

"On a Saturday night, we used to have so many people [dancing]. It creates such a fun, friendly atmosphere.

Mr Hunt said the standing outdoor change would create a more inviting atmosphere for visitors.

"We're all social beings," he said. "People are so used to seeing their cousin or their mates at another table and going over to say hello. To be able to do that will be huge."

The changes will also allow for an increase in staff across all areas of the venue - something Delany Hotel licensee Joshua Redman also mentioned as a big positive from the announcement.

While Mr Redman said it was not clear exactly what the changes will mean for the hotel yet, he expected there to be a big impact on weekend trading.

"Some people haven't bothered to go out because they can't dance, so that's definitely a positive for the hospitality industry," he said.

"We have a DJ upstairs on Friday-Saturday and if there's a dancefloor they'll be able to play different music. At the moment, there's nothing too dancy because people do forget about the sitting down rule."