Melbourne residents of COVID-19 outbreak areas who seek to enter NSW could from Thursday face six months' imprisonment or a fine of $11,000.
NSW residents who return from Melbourne hotspot areas, meanwhile, will be required to self-isolate at home for 14 days.
"This virus is quite capable of circulating, particularly in younger people," NSW Health Minister Brad Hazzard said on Wednesday.
"Normally we love having Victorians and Queenslanders and everybody else coming to visit us but Victorians right now, from those hotspots, are not welcome in NSW. We're sorry.
"It's not something we want to do but we must do for our own safety."
People trying to enter NSW stadiums from Wednesday may be required to show their driver's licence to prove they're not from Victoria.
NSW has eased a number of coronavirus restrictions while keeping an eye on outbreaks in Victoria, with penalties imposed on Melbourne hotspot residents who seek to cross the Murray.
Limits on attendance have been relaxed in NSW from Wednesday for funerals, weddings, places of worship and community sport, as long as there is no more than one person per four square metres of space.
Outdoor gatherings are still restricted to 20 people but community sport with a COVID-19 safety plan can have up to 500 participants.
Funerals, weddings and church services may have the maximum number of people allowed on the premises with one person per four square metres.
All businesses can now open and operate under the same principle.
Up to 20 people can visit another household at any one time and guests are permitted to stay overnight. Up to 20 people can also stay at a holiday home, with no restrictions on travelling within NSW.
A healthcare worker conducts a COVID-19 test at a Coronavirus pop-up testing facility in Broadmeadows, Melbourne. Source: AAP
But Premier Gladys Berejiklian has urged NSW residents not to open their doors to Victorians despite stopping short of closing the border.
From Thursday, Victoria will place residents of 36 Melbourne suburbs back into lockdown for a month in a bid to contain an unacceptably high number of new coronavirus cases detected in the past fortnight.
Victoria on Wednesday reported 73 new virus cases, compared with 14 - all of them returned travellers in hotel quarantine - in NSW on Wednesday.
One patient in NSW is currently in intensive care.
The premier on Tuesday also warned against complacency on social distancing and hygiene measures, suggesting NSW residents were becoming lax.
"I have noticed in and around my movements that people are starting to relax a little bit too much for my liking," Ms Berejiklian said.
Queensland on Tuesday announced it would permit entry to NSW residents from July 10 provided they have not visited Victoria in the previous 14 days.
Ms Berejiklian had repeatedly called for the reopening of the border.
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