The majority of cases so far have been acquired overseas but the new transmission has prompted a warning from state health authorities.
NSW Health executive director of health protection Dr Richard Broome said people needed to be vigilant for symptoms regardless of having returned from overseas.
"It is important that people with these symptoms avoid close contact with others, including sexual activity, as condoms are not effective at preventing the transmission of monkeypox," Dr Broome said.
Gay, bisexual and other men who have sex with men are some of the most at risk of contracting the virus.
Symptoms include fever, chills, muscle aches, backache, swollen lymph nodes and exhaustion.
Person-to-person transmission occurs with very close contact with infected people, including skin-to skin contact during intimate activity.
Symptoms usually begin to show seven to 14 days after infection.
There are 42 confirmed cases of monkeypox in NSW, including the recent local infection, as well as two other cases who acquired it elsewhere in Australia.
A vaccine has only recently begun to be rolled out to high risk groups with another round due next month.
The disease is endemic in Central and West Africa and has also been identified in parts of Europe.
It is usually spread through contact with animals or consumption of wild game.
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