The tanker driver was also killed and the parents of the 11- and 13-year-old girls were badly injured after the truck reportedly smashed into the cars at East Lynne about 4.50pm, leaving another four people injured.

The family -whose car was burnt out - was believed to be from the Ulladulla area, north of the crash site. Motorists pulled the parents from the burning wreckage of their upturned car but could not save the two children.

Emergency crews had to battle a massive blaze after the diesel tanker rolled down an embankment and burst into flames in what police called a deeply disturbing accident.

The parents were flown to Sydney for treatment. One was taken to Royal North Shore Hospital with burns to 80 per cent of their body, and the other went to Concord Hospital's Burns Unit.

One person was taken by ambulance to Batemans Bay District Hospital with spinal injuries, while three others were taken to Milton-Ulladulla Hospital with minor injuries.

Police said the crash occurred on a sweeping bend near Pebbly Beach when the tanker, travelling south, collided with three cars heading north.

All three cars were flung off the road and the tanker crashed down the embankment.

The incident brought the NSW holiday road toll to 17, the highest of any of the states and territories, while the national holiday toll stood at 51 last night.

The Princes Highway remained closed in both directions late last night, with motorists diverted to the Kings Highway.