Australian officials declared Sydney's northern beaches a coronavirus hotspot Friday as a cluster of cases grew to 28 and triggered a return of domestic travel restrictions.

The outbreak follows a period of relative normality in the city after it proved a success in keeping a lid on the virus in recent months.

But on Friday hundreds of thousands of residents were urged to stay home as much as possible for three days and long queues formed outside Covid-19 clinics as health officials raced to contain the infection.

"If we get on top of this in the next two or three days, all of us will be able to have a much better Christmas," Premier Gladys Berejiklian, leader of Sydney's state of New South Wales, told media.

"But if we don't get on top of it in the next few days, it could mean further restrictions down the track."

Despite most cases being linked to a venue in the suburb of Avalon on the city's northeast peninsula, Berejiklian said all of greater Sydney's over five million residents should be on "high alert".

Mask wearing -- although encouraged -- remains optional in Sydney as daily community cases in Australia have remained low or at zero for months. 

Success in containing the virus has allowed a continued rollback of restrictions ahead of Christmas, with domestic travel having returned largely to normal before the latest outbreak.

The loosening of curbs has sparked fears that the new outbreak could have already spread around the country.

One case linked to the cluster has been detected in neighbouring Queensland, prompting state and territory officials to announce restrictions on travellers from Sydney -- forcing many into isolation.

Some of the toughest restrictions have come from Western Australia, with the state's leader Mark McGowan announcing a 14-day self-quarantine for all arrivals from New South Wales.

"There is no doubt New South Wales is on the verge of a serious outbreak, and we must do whatever is required to keep us safe," McGowan said.

Health officials said genomic testing had found the strain of the virus was likely from the United States but how it spread to Sydney was unclear.

Overseas arrivals in Australia are strictly controlled and required to quarantine.

A bus driver who transported air crew from the city's airport also tested positive for an overseas strain of the virus earlier this week, but he is not linked to the northern beaches cluster, officials said.

Australia has recorded over 28,000 coronavirus cases and 908 deaths in a population of 25 million.