They are expected to cost the country's coastal fishing industry $62 million and as many as 295 jobs over the next five years.
The number of indigenous Hector's dolphins has declined from an estimated 29,000 in the 1970s to just 7,000, while there are only 111 remaining Maui's dolphins.
Officials said the tiny Maui's dolphin could be extinct within a few years -- a warning that prompted the government action.
"Clearly we've got iconic species here ... they only exist in New Zealand," said Fisheries Minister Jim Anderton. "And under business as usual inevitably (we will) watch the Maui's dolphin ... (become) an extinct population."
"We're going to give it a go, particularly for Maui's dolphins, to see if on our watch we can save them. We may not be able to," he told National Radio.
The coastal fishing ban will protect most of the dolphins' habitats, Anderton said.
"This is not an easy decision to make when you know you're going to put fishermen ... out of business," he said.
Seafood Industry Council chief executive Owen Simmonds said it was unhappy with the decision because the government was putting small fishermen out of business without any compensation "and for no real gain" to the dolphin.
"It will not save one extra Maui's dolphin," he said, asserting that previous catch controls already ensured that dolphins were not captured or harmed by fishermen.
Chris Howe, executive director of the World Wildlife Fund's New Zealand branch, earlier said that photographs of 22 common dolphins killed in trawler nets off North Island's west coast last December -- released by the government in mid-March -- proved that the fishing controls would not protect the endangered dolphins.
The Forest and Bird conservation group's advocacy manager, Kevin Hackwell, praised the government for taking the most significant action in 20 years to save the two species.
"The measures will go a long way toward halting the decline of the endangered dolphins and begin the slow path to recovery," he said.
But Green Party lawmaker Metiria Turei said the sanctuaries needed to extend farther out into the ocean.