Converted e-bikes will no longer be allowed on Sydney's suburban and intercity train services, the metro or NSW regional service TrainLink from November 1.
While other forms of e-bike can still be brought onto the train, converted e-bikes have been banned because they are more likely to catch fire.
"The idea of blocked aisles, confined spaces and battery fires from risky devices don't mix," Transport for NSW secretary Josh Murray said.
"We urge people to purchase good quality e-bikes that comply with minimum product safety standards and avoid any modification to their bike."
Fines will range from $400 to $1100, similar to carrying a petrol-powered device on a train.
The popularity of e-bikes has soared, with sales and imports of the device nearly tripling in Australia in the last five years.
But this has led some to try to transform their regular pedal bikes into e-bikes by fitting them with batteries and motors.
Known as converted e-bikes, they pose a higher risk of electrical failure because they are DIY installations that can have inadequate wiring and use second-hand batteries or poor-quality components.
This makes it easier for their lithium-ion batteries to catch fire.
A converted e-bike ignited at Blacktown Station in April, while another e-bike caught fire at Liverpool Station in August.
Since the beginning of the year, Fire and Rescue NSW have reported 77 fires related to e-bike or e-scooter lithium-ion battery blazes.
These kinds of fires are particularly hard to extinguish as batteries can explode, release toxic and flammable vapour, and reignite without notice.
The state government had considered a blanket ban on e-bikes but after consulting groups such as delivery services whose drivers frequently use e-bikes, Transport Minister John Graham said this would have gone too far.
"Taking out the highest risk-e-bikes is a sensible and balanced step, but we will watch this space very closely and take further action if necessary," he said.
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