Deputy Premier John Barilaro says crisis cabinet agreed on Monday night to offer relief to families after much of the state has endured months of lockdown and home schooling.
Children don't have to be vaccinated but all adults living with the children must be fully vaccinated. They must stay in the same trio of friends.
The three friends must also live within five kilometres of each other, or in the same local government area.
Premier Gladys Berejiklian said she hoped the change would boost the mental health of children locked at home.
"This change will hopefully make a big difference for families during the school holidays and allow young children and teenagers to catch up and reconnect with their friends," she said in a statement.
Meanwhile, the NSW-Queensland border bubble is under threat with the revelation a person with COVID-19 was infectious in several northern NSW communities for two days.
The Northern NSW Local Health District on Monday night confirmed a person had tested positive to the virus on Monday.
Mr Barilaro said the Tweed and Byron areas may need to be locked down, with an announcement due at Tuesday's press conference.
The infected person flew from Sydney to Ballina on Virgin Flight VA 1141 on Saturday and was infectious in the Byron, Ballina and Tweed areas until their positive test result on Monday.
On Monday the western NSW town of Cowra was forced back into lockdown, when a nine-year-old school boy tested positive to the virus.
With several areas included in the border bubble with Queensland now visited by infectious cases, there are fears the travel conditions could revert back to their strictest conditions.
Students and essential workers from the LGAs have been able to travel into Queensland from September 13, in an arrangement negotiated after weeks of sparring between the Queensland and NSW governments.
It comes as NSW reported fewer than 1000 new infections for the first time in almost a month.
It looks like the state will reach the 70 per cent double vaccination milestone that will allow more freedoms, in the first week of October, Mr Barilaro told the Nine Network.
Some 935 new local cases were recorded in the 24 hours to 8pm on Sunday and four deaths - two people in their 60s and two in their 80s - taking the toll for the current NSW outbreak to 245.
It was the lowest number of daily infections since August 27, but Ms Berejiklian pleaded with NSW residents to remain on high alert.