Seven pieces of the potentially hazardous material have been found across the Rozelle Parklands since a child brought home asbestos earlier this week, prompting their carer to alert authorities.
The child had been playing in a garden bed adjacent to the playground.
Local father and Inner West Council Mayor Darcy Byrne called for all the mulch to be replaced with organic, verifiably safe material, as used in the playground.
"Clearly, the entire batch of mulch that has been used in the parklands poses a risk to the safety of local residents," he said in a statement on Friday.
Mr Byrne took aim at John Holland, the contractor behind the park development, saying the firm had "manifestly failed" to provide a safe facility despite receiving enormous public funding.
"There's no room for error or excuses - all of the mulch must be removed from the park without delay," he said.
John Holland declined to comment.
Authorities are scrambling to devise a plan to rapidly remove the mulch in the park. (Bianca De Marchi/AAP PHOTOS)
Authorities are now scrambling to devise a plan to rapidly remove the mulch in the 10-hectare park amid fears of wider contamination.
The NSW Environment Protection Authority on Friday afternoon said it was "extremely concerned" by the incident and had issued a draft order for park operator Transport for NSW to remove all contaminated mulch from the site.
It was also working to determine the source of the asbestos and ensure it had not been used elsewhere.
"While very early advice was that the mulch used at Rozelle Parklands has not been used elsewhere, our investigation will include a review of all records pertaining to this batch of mulch," the authority said in a statement.
Premier Chris Minns said his focus was on making the site safe and ensuring the community understood a potentially toxic substance was on the site.Â
"The contractor is obviously responsible for this and once we deal with the immediate threat then we'll get into the nitty-gritty of who pays for it," he said.
Mr Minns added he was not aware of any further sites being contaminated with the same product.
The parklands, built over an inner-city underground interchange for a controversial $4.6 billion motorway project, has been closed since Wednesday.
It had been open for less than a month.
Transport for NSW confirmed on Thursday that three of 34 extra samples taken from across the site returned positive results for traces of bonded asbestos.
The material is considered low-risk compared to friable asbestos, which can be crumbled by hands.
Air monitoring since Tuesday has not detected unusual levels of air borne particles.
However, two further positive results were reported on Friday afternoon from samples from a landscaped area containing recycled mulch that is not publicly accessible.
The transport agency and John Holland are working on plans to safely remove and replace the affected recycled mulch.
The site, which was completely fenced off on Friday, is expected to be closed for a minimum of several days.
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