Sydney has retained its spot in the top ten of the world's most liveable cities - beating Melbourne by eight places.
Sydney remains stable in tenth place in the global survey, scoring 106.3 points and overshadowing Melbourne, which ranks 18th on 104.8 points.
Australia's other state capitals are out of the world's top 20, but still in the top 40, with Perth ranked 21st, Canberra 26th, Adelaide 32nd and Brisbane 36th.
But all Australia's major cities were beaten by the Kiwis, with Auckland taking out fourth position, equal with Vancouver, Canada.
New Zealand's capital also did well, with Wellington holding its 12th position from last year.
The 2010 Mercer Quality of Living Survey is based on 39 criteria, including political, socio-economic, environmental, health, education, and transport.
The survey covered 221 cities and compared them to New York as the base city, which was ranked in 49th position with an index score of 100.
It found the most liveable city in the world is Vienna, Austria, with 108.6 points, while Switzerland's Zurich and Geneva followed in second and third position respectively.
Baghdad in Iraq is ranked last with just 14.7 points, coming in below Bangui in the Central African Republic and N'Djamena in Chad.
Mercer says Australian and New Zealand cities continue to boast world-class quality of living standards and remain attractive destinations for overseas expatriates.
In Mercer's eco-city ranking list, Calgary in Canada has taken out the top spot followed by Honolulu in the United States.
The only Australian city to make the top ten in the eco-city rankings is Adelaide in seventh position.
Criteria for the eco-city ranking include air pollution, traffic congestion, water availability, waste removal and sewage treatment.
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