The closure of the NSW and Victorian border is "another kick in the guts" to regions that had just restarted local tourism after a tumultuous start to the year.
The announcement came on Monday as Victoria recorded its biggest daily increase in COVID-19 cases, with 127 new infections.
NSW Premier Gladys Berejiklian said it was a step the government had to take.
"What is occurring in Victoria is a new phenomena in Australia and we don't want that to occur in NSW," she said.
"This is the first time where we have had major community transmission, not based on overseas travel."
It has not been confirmed how the closure will impact ACT residents. The ACT government has been contacted for comment and are expected to provide an update at 3pm.
Meanwhile, Canberra Airport is awaiting advice about the impact on flights to and from Melbourne.
But for communities on the far south coast it comes as a "kick in the guts" after a year of disaster.
The town of Eden is less than an hour drive to the Victorian border, and receive the vast majority of local tourists from that state.
Eden Chamber of Commerce president Peter Whiter said the decision was necessary, but would hurt the Sapphire Coast region.
"We had the bushfires and then Covid where we sent people home and now it's happening again," he said.
"It's a terrible thing for the economy but nonetheless imperative that it happens."
Bega Valley Shire Mayor Sharon Tapscott said the decision would hit local businesses that had welcomed Victorian tourists in the first week of school holidays.
Cr Tapscott urged all Victorians in the region to return home.
"We very much respect this important move designed to contain the spread of COVID-19," she said.
"It is a very fragile time in our community as with many. We hope to welcome Victorian visitors back to the region over time as the health position improves."
On the NSW ski fields, it is expected some Victorians will be forced to cancel bookings.
Thredbo Chamber of Commerce president Steve Owen said while most Victorians hit the slopes in their own state, a "fair few" normally make the trek across the border.
NSW Health Minister Brad Hazzard said there were concerns the outbreak could spread beyond Melbourne.
"We're hoping it won't but we can't afford that risk here in NSW," he said.
"Borders shutting should send a clear message to all NSW residents right now, if you're thinking of going to Victoria in the next 24 to 48 hours, my strong suggestion is do not go."
Anyone returning to NSW from Melbourne will be required to self-isolate for 14 days.