An industrial dispute has erupted on Sydney's ferry service after a worker was dismissed for allegedly failing an alcohol test.

Harbour City ferry F1 services between Circular Quay and Manly were cancelled on Tuesday evening, with customers asked to use replacement buses or the Manly Fast Ferry.

The dispute was sparked after a crew member was dismissed for allegedly returning a positive alcohol test.

"The MUA and Transdev are in dispute following the dismissal of an employee who provided a positive alcohol test recently," a Transdev Sydney Ferries spokesman said in a statement.

All Tuesday night's F1 ferries have been cancelled, according to the ferries spokesman, who said buses would replace all services.

Several Maritime Union of Australia officials have been contacted for comment.