Australia’s largest city has been under stay-at-home orders since late June due to an outbreak of the Delta variant.
More than 2,500 people have been infected in Sydney’s worst outbreak this year.
Premier Gladys Berejiklian said it was not possible for the city to exit lockdown on Friday as had been planned.
She announced further curbs on movement – including a 10km (6.5 miles) limit on essential shopping.
Sydney’s five million residents had enjoyed a fairly normal lifestyle this year until the outbreak happened.
State governments have plunged cities into rapid lockdowns to curb outbreaks, using aggressive contact tracing.
There have been over a dozen snap lockdowns in the past year.
But experts warn that restrictions in Sydney could last until September or even later.
The highly policed lockdown has fuelled discontent among some in the community.
Several thousand people staged “freedom” protests in Sydney, Melbourne and other cities on the weekend.
It has also highlighted the nation’s bungled vaccine programme, which began in February.
They also attribute it to confidence in the AstraZeneca vaccine being undermined by mixed messaging about its rare blood clot risk.