NSW recorded 199 new locally acquired cases in the 24 hours to 8pm Monday.
NSW Premier Gladys Berejiklian said 50 of the new cases were infectious in the community.
"Again our workplaces and households are the main places where the virus is transmitting," she said.
The Premier said NSW had recorded 3.9 million vaccinations so far.
"By the end of August I'd like to see that number go to six million jabs," she said.
Ms Berejiklian said vaccination milestones gave "additional options as to what life looks like on the 29th of August".
Increasing vaccinations would also help reduce the spread of coronavirus in the community.
"On August 29, we want to be able to ease restrictions but that will depend on where the case numbers are at, but also of course what the vaccination rate is at," she said.
More than 104,000 tests were carried out across the state yesterday, and comes the day after a record 117,000 swabs on Sunday.
There are currently 250 cases admitted to hospital, with 53 people in intensive care, 20 of whom require ventilation.
NSW recorded 199 new locally acquired cases of COVID-19 in the 24 hours to 8pm last night.— NSW Health (@NSWHealth) August 3, 2021
Of these locally acquired cases, 88 are linked to a known case or cluster, 67 are household contacts and 21 are close contacts. Source of infection for 111 cases is under investigation. pic.twitter.com/KbBCwOjJ2Y
"We don't know if it's peaked or if it's going to get worse," Ms Berejiklian said.
Ms Berejiklian said the government had been exploring incentives "for some time", and had wanted to make clear to Sydneysiders what life beyond lockdown could look like if vaccination and case numbers co-operated by the August 28 deadline.
"On the current rate that we're doing we should be able to get there with the jabs," she said.
"We're really focusing on what people really want at this stage," she said.
"They want certainty they can move around freely, send their kids to school, go to work.
"We believe based on experience overseas that allowing people extra movement or extra activity if they've been vaccinated is the greatest incentive of all."
NSW Health said 88 of the new cases were linked to a known case or cluster, 67 were household contacts and 21 were close contacts.
NSW Health administered 25,312 COVID-19 vaccines in the 24 hours to 8pm last night, including 8,977 at the vaccination centre at Sydney Olympic Park
The total number of vaccines administered in NSW is now 3,968,811 with 1,535,018 doses administered by NSW Health to 8pm last night and 2,433,793 administered by the GP network and other providers to 11.59pm on Sunday August 1.
Queensland authorities have reported 16 local cases, all linked to the Indooroopilly cluster.
Victoria recorded four new local COVID-19 cases and one new case acquired overseas, currently in hotel quarantine.
EARLIER: Victorian authorities reported four new local COVID-19 cases and one new case acquired overseas, currently in hotel quarantine.
The health department said on Tuesday morning the locally-acquired cases were linked to the current outbreaks and all had been in quarantine throughout their infectious period.
On Monday 16,591 vaccine doses were administered and 22,217 test results received.
There are 124 active cases in Victoria.
Queensland authorities have warned the situation would continue to escalate with concern centred on two schools that have recorded positive cases.
While in NSW a COVID-19 outbreak at an inner west Sydney nursing home has reached 20 people as the residents of an entire floor are shifted to hospital.
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The union for independent school staff in NSW, meanwhile, has called on the government to rethink its Year 12 reopening plan for August 16.
With no sign of the outbreaks ending soon, the federal government is focusing on measures to limit the damage to the economy, while the Reserve Bank of Australia will hold its monthly board meeting with economists now predicting a sharp economic contraction in the September quarter.
Meanwhile, Labor says offering a $300 payment to fully vaccinated Australians will give the program a much-needed shot in the arm.
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- additional reporting KIM CHAPPELL
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