Severe thunderstorms forecast on Tuesday afternoon were expected to continue overnight, bringing intense rainfall, large hailstones and damaging winds.
The weather bureau issued the warning for people in the Northern Rivers, metropolitan, Illawarra and south coast regions.
Parts of the mid north coast, Hunter, central tablelands, southern tablelands, Snowy Mountains, northern tablelands and ACT were also issued with a warning.
Lismore, Grafton, Sydney, Wollongong, Nowra, Batemans Bay and Goulburn were expected to be the main places affected.
Bureau meteorologist Angus Hines said conditions were forecast to ease by Wednesday afternoon.
"By and large by Wednesday afternoon we're starting to see the end in sight for this thunderstorm outbreak," he said.
"Keep an eye on the severe thunderstorm warnings which will be issued and updated all through the day as we monitor and track the development of these severe and potentially dangerous storms."
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.
NSW SES assistant commissioner Sean Kearns said crews were well prepared ahead of anticipated bad weather on Tuesday night, predicting similar conditions to that of Christmas Eve and Christmas Day.
"We're expecting further storms into the evening and some of them may be severe," he said.
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