The Bureau of Meteorology (BOM) issued the rare tornado warning around midday as the dangerous storm swept up the coast from Sydney's south, forcing some international and domestic flights to be diverted to other cities.
A Reuters witness described widespread damage at an industrial park in the hard-hit Kurnell neighbourhood near the southern beachside suburb of Cronulla.
"We really had no warning. The sky just went really black and we had this massive clap of thunder," said Meredith Sullivan, a 48-year-old worker at the industrial park.
"Then the gusts of winds were just horrific, you could hear the roof starting to lift and debris was starting to fly around. All the cars were pretty much destroyed," she said.
Kurnell, which is close to Sydney's airport, was closed to all but emergency services, who were assessing the damage. Wind gusts as high as 213 kmh (132 mph) were recorded there.
"There is obvious evidence that we have had a tornado go through Cronulla today," BOM meteorologist Alan Sharp told Sydney media.
Social media was swamped by pictures of the huge, dark storm as it engulfed the harbour city, plunging a 25 degree Celsius (77 Fahrenheit) summer's day into darkness.
A shopping centre in Sydney's eastern suburbs was also evacuated after part of its roof collapsed in the storm, media reports showed, and one woman suffered minor injuries.
Some 6,000 homes were reportedly without power south of the city and rescue services received more than 200 calls for help in the city.
"The tornado risk has now subsided but there is a very good chance of more thunderstorm activity for the rest of today," said BOM senior meteorologist James Taylor.
Australia is experiencing an El Niño weather pattern, a phenomenon associated with extreme droughts, storms and floods, which is expected to become one of the strongest on record, the U.N. weather agency said earlier this year.
