The tornado damaged "houses, power lines and trees" near the town of Bathurst, the weather bureau said.
"We have indications of damage over a 25 to 30-kilometre line, running roughly northwest," it added.
Images from the scene showed a car smashed, structures flattened, the roof of a building peeled off like a tin can and leaf-stripped trees strewn across farmland.
Resident Kathy Jones told public broadcaster ABC that she saw her house "swirling around".
"It took the house, the roof, it took everything," she said.
"Everything was just swirling around... there's not much left, we've got a big mess to clean up."
Three people are reportedly being treated for injuries.
The region had been on high alert for severe thunderstorms throughout much of Thursday.
Tornadoes are relatively common in parts of Australia, but rarely cause fatalities.
New South Wales State Emergency Services said warnings were ongoing and told residents to "secure or put away loose items around your house and balcony".
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