He said ministers would be sacked for having sex with staff members under the new rules.
Australia's deputy prime minister was under mounting pressure Wednesday to resign as his party's leader over revelations of a relationship with a former staffer.
Mr Turnbull said Mr Joyce would be on leave for a week from Monday.
"I think we know that the real issue is the awful hurt and humiliation that Barnaby, by his conduct, has visited upon his wife, Natalie, and their daughters and, indeed, his new partner", Mr Turnbull said.
"Barnaby has acknowledged his fault, his error, his grief about his conduct", Mr Turnbull said.
"He has set off a world of woe for those women and appalled all of us", Mr Turnbull said.
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"Ministers, regardless of whether they are married or single, must not engage in sexual relations with their staff", he said, stating a new rule that his Cabinet must now adhere to.
While some were puzzled at his decision not to sack Mr Joyce - sending him on leave instead - others were left baffled at his awkward wording.
The prime minister reaffirmed his deputy would act for him while he visited the White House next week. While Nationals deputy Bridget Mackenzie was also giving Mr Joyce her whole-hearted backing.
Asked twice why Mr Joyce should not resign given the ministerial code was being changed as a result of his behaviour, the Prime Minister noted the Deputy Prime Minister was the leader of the National Party.
Mr Joyce has faced questions over the timing of two unadvertised jobs within his party that were taken up by Ms Campion previous year.
'The #bonkban is all about making it look like the affair is what Barnaby Joyce did wrong.
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The situation was about to get very, very awkward, but thankfully Joyce and Turnbull have come up with a cheeky little solution.
Ms Credlin also slammed Mr Joyce's handling of the whole matter, saying if she had taken his job offer, "I would not let him get away with letting this issue drip on and on and on to the point where it now is".
It marks a further fall from grace for Mr Joyce, who was due to take over the Acting Prime Minister position next week when Mr Turnbull meets with Donald Trump in Washington. The ministerial code of conduct bans ministers from employing their "partner".
"Those who believe he has breached ministerial standards or want to believe that, they should actually make the case for where the breach has occurred", he said.
"These kinds of bans on relationships or policies on workplace affairs for senior executives is not new for many public and private companies in Australia", he told AAP.
Opposition Leader Bill Shorten immediately asked if the move meant "that the Deputy Prime Minister can not do his job?"
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