Up to 50 people will be able to gather in private homes over the festive season, with Premier Gladys Berejiklian announcing she had been able to "go further than anticipated" in lifting some COVID-19 restrictions.
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At her 11am media conference, Ms Berejiklian said number of visitors allowed in homes will increase from 20 to 50, as long as hosts have an outdoor space available.
For those with indoor spaces only, a 30 person limit is recommended, she said, but this will not be enforced.
"We are appealing to people's common sense," she said.
"We're trying to be as accommodating as possible, because we know not everyone can have a big house and big backyard."
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Also under the lifted restrictions, cafes, restaurants, pubs and clubs will be allowed to double their capacity with one person allowed per two square metres. There will be no patron cap as long as this rule is followed.
As well up to 50 people, up from 30, will be allowed to gather outdoors and 50 patrons will be allowed in small hospitality venues up to 200 square metres from Tuesday.
"I hope these changes provide a boost to the hospitality industry and give people certainty in how they can celebrate safely with family, friends and colleagues over the Christmas and New Year period," she said.
And from December 14 public health orders requiring employers to allow staff to work from home will end.
"We will be staying silent on that," Ms Berekilian said, adding that this would mean private companies could make their own decisions about what that means for their employees.
With more people expected to be using public transport, Transport Minister urged people to wear masks while using trains and buses, and urged them to consider "retiming" their day so that peak times were not too busy.
"Please avoid crowds, take your time and be patient," he said.
The government says it does not want to impose fines or make masks mandatory, but has stressed they are critical to keep people safe.
"It will become necessary if people don't lift their game," health minister Brad Hazzard said.
The restriction changes came a day after Queensland announced it would open its border to Sydney from Tuesday.
Qantas and Jetstar plan to operate an additional 1200 return flights to Queensland from NSW and Victoria in the lead-up to Christmas.
Virgin Australia says Queensland's decision to reopen the border to all of NSW will help the airline and tourism industry to get back on its feet and put more people back to work.
With no locally acquired cases overnight again, NSW has now gone 18 days without a single case of COVID-19 in the community.
There were four cases found in overseas hotel quarantine, and more than 16,000 people were tested.
There are no patients with COVID-19 in intensive care in the state.
Meanwhile, NSW Health has discovered COVID-19 virus fragments in sewage at the Liverpool sewage treatment plant in western Sydney, prompting renewed calls for residents to get tested.
The detection of the virus could reflect the presence of known cases of COVID-19 diagnosed in recent weeks in the area.
But NSW Health is concerned there could be other active cases in people who have not been tested and who might incorrectly assume their symptoms are "just a cold".
- With Australian Associated Press
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Kate McIlwain
For more than a decade, I've helped the Illawarra Mercury set the news agenda across the region. Currently I'm the paper's health reporter - covering the stories of Illawarra workers and residents in the wake of a global pandemic and at a time where our health systems are stretched to the limit.
For more than a decade, I've helped the Illawarra Mercury set the news agenda across the region. Currently I'm the paper's health reporter - covering the stories of Illawarra workers and residents in the wake of a global pandemic and at a time where our health systems are stretched to the limit.
