Terrifying footage captured by firefighters shows a 70-metre wall of flames as it engulfs bushland in Mount Tomah at the Gospers Mountain.
It comes as Australia is expected to face its hottest day on record next week.
The country has already endured months of bushfires made worse by a drier-than-average and warmer-than-average fire season.
Some 724 homes have been destroyed so far, six people have died and 2.7 million hectares have been scorched.
The New South Wales Rural Fire Service Deputy Commissioner Rob Roger told the Australian Broadcasting Corporation the fire in Mt Tomah had “impacted” several properties and residents had been told it was too late to leave.
The "mega blaze" at Gospers Mountain has been raging for several weeks and has burnt more than 369,000 hectares.
The fire service said there were hundreds of firefighters on the ground, as well as airtankers launching fire retardant to help prevent the fire's spread.
Meanwhile, the Bureau of Meteorology said temperatures are likely to exceed 40C in many urban areas from Wednesday. Areas of the outback could reach more than 50C.
The Bureau of Meteorology said: "It is not out of the realms of possibility that we could break our highest ever recorded temperature of 50.7C at Oodnadatta, which is in South Australia."
The current record was set on 2 January, 1960 in the outback town of Oodnadatta in South Australia.
In Perth temperatures have remained between 40 and 41 degrees for several days and the hot weather is expected to move east, with temperatures hitting between 40 and 42 in South Australia, Victoria and New South Wales.
"We're expecting some incredibly warm conditions as we head into next week, potentially record-breaking for a number of areas across southern Australia over the next seven days or so," BOM meteorologist Diana Eadie was quoted by ABC as saying.
"It is not out of the realms of possibility that we could break our highest ever recorded temperature."
The country, she added, could also see its highest average temperature record - when all of the maximum temperatures recorded on any given day are combined - broken next week. That record is 40.3C from 7 January 2013