The weather bureau said the situation was "rapidly evolving" as three storm cells merged into one and moved towards the state's southeast.
It was forecast to affect Hornsby, Parramatta, Sutherland, Sydney Airport, Sydney Olympic Park, the Sydney Harbour Bridge, Mona Vale and waters off Bondi Beach.
The NSW State Emergency Service said people should move their cars away from trees or under cover and secure loose items.
Wet weather has battered parts of NSW for multiple days leaving communities on alert to the possibility of flooding.
The weather bureau also issued a severe storm warning for people in Penrith, Parramatta, Wollongong, Nowra and Campbelltown.
Volunteers from the NSW State Emergency Service were kept busy through Christmas and Boxing Day, responding to 473 calls for help and conducting six flood rescues.
More than 80 jobs were recorded in the state's northeast on Boxing Day, after four-centimetre hail caused havoc near Maitland in the Hunter Valley, shattering windows and damaging vehicles, skylights and roof tiles.
The suburb of Rutherford was particularly hard hit, with more than 50 people calling for help in under an hour after facing the brunt of the hail.
10°C