An independent review panel is recommending "a fundamental overhaul" of the rules that govern aquaculture in Nova Scotia.

The province called for the review of the rules in April 2013.

A two-person panel released its interim report on Friday. It rejects the call for an outright ban on fish farms in coastal waters and instead recommends restricting the establishment of aquaculture operations to zones that are compatible with other fisheries and existing water uses.

The report also says there should be tighter rules and more monitoring of operations.

Bill Lahey, an associate professor at Dalhousie University and one of the authors of the report, said the public will have its say on the report before a final version is submitted to the province.

He said tighter rules are the answer.

"They're serious issues that need to be addressed," he said. "We believe they can be addressed by the kind of regulatory framework that we've proposed."

Some critics say fish farming is doing major damage to the environment and poses a serious threat to wild fish stocks and lobster grounds.

In 2012, Cooke Aquaculture was forced to slaughter a million salmon at a Nova Scotia fish-farming operation because of a virus outbreak.

The panel is recommending restricting where fish farms can be set up by establishing coastal red zones where it would be hard if not impossible to have one; yellow zones where they might go; and green zones where they would be welcome.

Ray Plourde, wilderness coordinator for the Ecology Action Centre, said they would have liked to have seen open net pen aquaculture phased out altogether. 

"We don't think it is a sustainable method. There's no right way to do the wrong thing,” he said.

"This report makes it very clear that communities that do not want fish farms cannot have them simply rammed down their throat."

Plourde said he agrees with the idea of creating colour-coded zones. He said the panel has accepted the serious and real criticisms directed to the industry.

An official with the Atlantic Canada Fish Farmers Association says companies are already doing much of what the panel is recommending and that tightening the rules will not be much of an added burden.