SYDNEY - Australia will ring in the new year with harsher restrictions on movement, gatherings and internal borders as the country's two largest states battle to quash fresh COVID-19 cases in their capital cities.

Australia's second-most-populous state, Victoria, will limit indoor gatherings to 15 people and reintroduce mandatory masks indoors starting Thursday, a day after it reported three new cases that ended its COVID-free streak of more than two months.

Though cases slightly eased in the most populous state of New South Wales (NSW), authorities described the situation as "very volatile".

"Pleasingly, we have seen the numbers go down today... but they are going to bounce around and what is really important is for all of us to do everything we can to reduce our mobility," NSW Premier Gladys Berejiklian told reporters.

Authorities have tightened rules ahead of New Year's Eve, hoping to avert community transmission, as cases are expected to rise in the coming days because of family gatherings and travelling during the holidays. 

Sydney's virus clusters continued to grow, with the latest one in an inner-west suburb rising by three cases in the last 24 hours. The cluster detected in the northern seaside areas in mid-December now includes nearly 150 cases.

NSW reported 10 new local cases compared with 18 a day earlier, while Victoria added three to its tally.

Meanwhile, South Australia state on Thursday said rising infections in Sydney have led it to put up a hard border with NSW starting Friday, with only returning residents, essential workers and people relocating to the state allowed entry.

Australia has reported just over 28,400 COVID-19 cases and 909 deaths since the pandemic began. 

(Reporting by Renju Jose. Editng by Gerry Doyle) ((renju.jose@thomsonreuters.com; +61 2858 77243;))