NSW Premier Dominic Perrottet has reinstated a mask mandate after the state recorded a surge in cases overnight.
Perrottet told reporters at a press conference held on Thursday that as of midnight NSW would require masks to be worn in indoor settings.
The premier also recommended people in the state work from home if possible.
"We are encouraging people, particularly over the holiday period, if you can work from home, please work from home," he said.
The restrictions will remain in place in the state until January 27.
NSW will also tighten its testing and isolation system.
QR codes for retail will return, but be targeted to avoid people crowding at the front of stores.
Dr Kerry Chant, NSW Chief Health Officer said that in the current setting NSW Health would now only contact people who had entered or worked in high-risk settings.
"So what we are doing currently is we test people who have a positive result, we give them advice about what they need to do to self isolate," Chant said.
The state's daily COVID-19 cases surged to a record 5,715 on Thursday. NSW will be getting 300,000 booster shots a week in January, the premier said, adding that this would be "crucial" to the state and territory's approach to combating the Omicron variant.
"It's our best line of defence as we move through this next phase of the pandemic. I want to thank everybody who has gone out and made the effort," Perrotet said.
The state follows Victoria, which announced a return to mask mandates for indoor settings on Thursday morning after the state recorded 2,0005 cases.
From 11.59pm tonight in Victoria face masks will be required in all outdoor settings except private homes for people aged eight and over.
Masks will also be required at major outdoor events for people over 30,000 people, which can not be removed when seated.
The Victorian health minister also recommended Victorians work from home if possible over the festive period.
The state's restrictions will remain in place until January 12.
The news comes following an emergency national cabinet meeting held on Wednesday where the prime minister addressed mask mandates and the nation's booster shot program.
Prime Minister Scott Morrison on Wednesday announced a raft of new measures to address rising case numbers of the Omicron variant.
The government would focus on three key areas, with the first being public health social measures designed to "moderate the pace of infection," Morrison said.
It will also amp up its vaccination booster program along with its TTIQ; test, trace and quarantine program.
However the prime minister did not come away with a firm decision on mask mandates across states and territories.
While Morrison said it is "highly recommended" people wear them, the decision has been left to individual states and territories to decide.
Perrottet, who has previously resisted harsher restrictions for the state ahead of Christmas, told reporters the changes "are proportionate" to the severity of the current spread of the virus in the state.
"While we are seeing low numbers in ICU, very manageable numbers in ICU, it is more in relation to making sure that our health system is able to be well-manned during the summer period," he said.
The pandemic response required a balance of health and economic choices, Perrottet said.
"This pandemic is a balancing act and we balance the health needs with the mental health needs, with the economic needs," he said.
"The decisions of the NSW government has kept our state strong. People are working, being kept safe, low death rate, are ICU presentations are incredibly manageable at the moment, particularly given your case numbers are.
"We are in a strong position in our state and the slight changes we have made, as we move through until 27 January, are modest but cautious to make sure New South Wales gets through the holiday season and they will play some role but ultimately, personal responsibility plays the key role."
Overnight Queensland recorded 369 new cases, with 85 new cases in the ACT.
Tasmania and the Northern Territory recorded 26 and 10 new cases respectively.
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