“Our strategy is to make sure we nip this in the bud as soon as we can,” the state's premier, Gladys Berejiklian, said at a televised news conference.
“And in the next few days we will let the community know what New Year's Eve will look like and what January looks like for the northern beaches and the rest of Sydney.”
She encouraged Sydneysiders to switch to online purchases for Boxing Day shopping.
Australia's National Retail Association this week forecast a record A$2.75 billion ($2.1 billion) Boxing Day splurge, up 5% from last year. Online shopping is expected to jump 42% to A$930 million.
Victoria, which on Saturday saw its 57th-consecutive day of no new coronavirus infections and no related deaths, is expected to account for about a quarter of the forecast spending.
Residents in Victoria's capital Melbourne, which endured a 111-day harsh lockdown earlier this year, have been embracing increasing freedom of movement.
On Saturday, a 30,000-strong crowd flocked for the first time in nearly 300 days to the city's cricket grounds for the sport's Boxing Day Test, though attendance was capped at a third of normal levels.