Ten soldiers on board were plucked to safety in a dramatic rescue after the Army MRH-90 Taipan multi-role helicopter went down just after 9pm on Wednesday.
Defence has temporarily paused the training activity and grounded the MRH-90 Taipan fleet while the cause of the incident is investigated.
Commander Army Aviation Command, Major General Stephen Jobson praised the professionalism of those involved in the emergency.
"The aircraft has successfully allowed for the egress of all 10 occupants and the air crew handling the aircraft played a very large part in ensuring that outcome," he told reporters in Jervis Bay.
The exercise involved members of the 6th Aviation Regiment and Special Forces 2nd Commando Regiment.
Small boats that were part of the training exercise helped ferry the survivors back to shore where they were checked by paramedics before being assessed by medical personnel at HMAS Creswell, south of Nowra.
One of the crew was treated for a "a head bump" while the another had ingested seawater, Maj Gen Jobson said.
"I can advise that the aircrew are robust and on their feet and assisting with the safety investigation."
Defence Minister Richard Marles said the crash happened when the helicopter lost power mid-flight.
"The crew were able to shut down the rotor ... in really a textbook fashion and were able to ditch the helicopter in Jervis Bay itself," he said.
"This was an extremely professional textbook response to obviously a terribly frightening situation," he told Nine's Today program.
"The critical question is why did the engine stop."
In 2021, the government announced plans to prematurely withdraw the European-made Taipan model from service, replacing them with Black Hawks and Seahawks purchased from the United States.
The Navy has already stopped using the Taipan choppers, which are now solely operated by the Army, with a spate of groundings and technical issues raising concerns over their reliability.
At the time, the defence department said the Taipan model - made by Airbus - had not met contractual availability requirements and had experienced blown-out operational costs ahead of its planned withdrawal from service in 2037.
Mr Marles praised the skill of the pilot in manoeuvring the chopper to ensure the safety of all on board.
"It is an incredible act on the part of the crew in managing to get the helicopter down in a manner where pretty well everyone's able to walk away," Mr Marles said.
Chief of Army, Lieutenant General Simon Stuart, thanked emergency responders for their quick action.
"Tonight quick responses from ADF personnel and emergency services and well-drilled teams prevented a potential tragedy," he said.
"We will conduct a thorough investigation into this incident to determine the cause and ensure the platform remains safe to operate."
Maj Gen Dobson said efforts were being made to mitigate any effects on the environment.
"There is an engineering assessment being undertaken that will both look at the environmental aspects and the recovery of the aircraft," he said.
An investigation by the Defence Flight Safety Bureau is under way, with the incident site contained by Australian Federal Police.
