NSW has recorded 22 new Covid-19 cases in the past 24 hours, marking the state's biggest spike in cases since April.
Four of those are from people in hotel quarantine, two are from Victoria and eight are linked to the Tangara school cluster in Cherrybrook.
"Any new cluster is a concern. I anticipate the number of that cluster will grow," Premier Gladys Berejiklian said.
Berejiklian urged people to be cautious about their daily activities and not take any unnecessary risks.
"This is not the time for complacency. It is the time to be on high alert," she said.
There are now 17 cases associated with the Tangara School for Girls, just days after the cluster was first discovered.
NSW is 'on a knife's edge'
Premier Gladys Berejiklian has warned NSW is on "a knife's edge", after announcing the state's biggest spike in cases in almost four months.
"My anxiety has not subsided in relation to what a knife's edge NSW is on," she said during today's press conference.
"We are in a pandemic. Every organisation, every entity needs to abide by the COVIDSafe plans.
"Otherwise we risk having a surge in numbers and we also rise having a surge in clusters and none of us want to see that."
Berejiklian said everyone needed to be on guard during this critical period in the state's outbreak.
"I am absolutely paranoid about what I do myself. The worst thing would be to unintentionally give it to others," she said.
"I don't want people living with the guilt of passing on the disease or causing the spread because they could have prevented something from happening.
"That's why all of us need to be on guard. We can't pretend that it won't affect us."
Change that could spark NSW's second wave
New South Wales' daily Covid-19 cases have remained relatively stable over the past few weeks, but there is one small change that could send the state into a Victorian-style second wave.
Epidemiologist Dr Fiona Stanaway told the ABC that NSW's ability to control the virus "all depends" on how many cases are found without a known source.
"It's good, in that our figures have not taken off like it did in Victoria – Victoria had numbers like ours for about a week before rocketing up – but it's bad that mystery cases continue to pop up," Stanaway said.
"Numbers not going up is good, but going down would be even better."
Over the past seven days there have been at least eight cases that authorities haven't been able to link to any known outbreaks or sources.
This leads to concerns that there may be chains of transmission within the community that haven't been detected.
Stanaway said that if people across NSW stopped coming out to be tested in such large numbers then that could also lead to cases being missed and the number of infections skyrocketing.
"If one of the eight mystery cases – or anyone who's infected, regardless of the source – just happens to go to a social event before they know they're infected, that has the potential to spread the virus widely," she said.
She said it would be a "big cause of concern" if the state was still seeing this daily increase in infections in three months time.
Victoria is struggling to deal with an increasing number of mystery cases within the community.
The state has more than 15,000 confirmed Covid-19 cases, with more than 2800 of those having an unknown source.