Mariner 398 was tracking from Richmond to Nowra, via Camden and Wollongong. The crew had planned at 8000 ft but due to other traffic the aircraft was restricted to 7000 ft initially. The track took the aircraft close to D595 which is used for parachuting at Wilton. At 1215 the aircraft was approaching Camden. VH-WRT departed from Wilton at 1210 for parachute operations and requested clearance to climb to flight level 130. The pilot was told by the sector 12 air traffic controller to climb to 7000 ft and remain within 3 miles of Wilton. The sector 12 air traffic controller co-ordinated details on VH-WRT, including the 7000 ft altitude limit, with Sydney departures south. In response the controller was given identification on Mariner 398 and told that Mariner 398 was at 7000 and would call sector 12, eventually, at 8000 ft. The sector 12 controller told the pilot of VH-WRT, at 1218, to maintain present altitude. The pilot acknowledged and said he was at 6300 ft. Subsequently the sector 12 controller passed traffic information on Mariner 398 to VH-WRT. The two aircraft passed with 700 ft vertical separation and one mile horizontal separation. The minimum separation required was 1000 ft vertical or 5 miles horizontal. Significant Factor The following factor was considered relevant to the development of the incident: 1. A lapse on the part of the sector 12 air traffic controller meant that the required separation was not applied.