The new service enables orinary folk to offer a taxi-like service, charging people they pick up for their ride.
Transport for NSW, a State Government agency, yesterday said such operations by non-accredited taxi drivers would be illegal.
"The law is clear and has not changed: if a NSW driver is taking paying members of the public as passengers, the driver and the vehicle must operate in accordance with the Passenger Transport Act," the agency said.
"Under the Act, such services must be provided in a licenced taxi or hire car, by an appropriately accredited driver, authorised by Roads and Maritime Services," the statement said. "A person who carries on a public passenger service in breach of the Act may face prosecution and fines of up to $110,000."
In Melbourne, Victoria's Taxi Service Commissioner, Graham Samuel, said the Uber service didn't appear to be complying with Victorian law.
However Uber Sydney general manager David Rohrsheim said the company would continue to trial the low-cost service in NSW and would stand by its drivers. "If one of our partners were to receive a ticket as a result of using Uber's technology, we would absolutely stand by them," he added.