Authorities issued a severe storm warning after the twister emerged in the mid-afternoon, swirling over a lightly forested rural area about 260 kilometres (160 miles) inland from Sydney.

A fire tower camera, set up to monitor for bushfires, automatically captured images of the tornado's tail curling up from the ground into a dark cloud that covered the sky near Young, a town in the Hilltops region of New South Wales.

Emergency services warned of damaging winds and large hailstones, advising people to stay indoors, move cars under cover, and secure loose items.

There were no immediate reports of injuries.

Australia's bureau of meteorology said the tornado was observed in the mid-afternoon. Another was sighted about 70 kilometres away an hour earlier, it said.

Fire service towers are equipped with cameras to automatically detect smoke, as well as signs of heat and fire.

They can also monitor storm cells because of the risk that lightning strikes may set off grass fires, said New South Wales Fire Service inspector James Morris.

"The cell that was coming across did have a lot of lightning in it," Morris told AFP.

"This season we have got very high fuel loads in the grassland areas," he said, following long periods of rain and warm weather.

"Once that grass cures off it provides a significant risk for grass fires. That is likely what our biggest risk will be this season."