The premier, Mike Baird, has tried to shrug off suggestions he has "no chance" of fulfilling a plan to lure the Formula 1 Grand Prix away from Melbourne.
Mr Baird has appointed former News Limited boss John Hartigan and Rod McGeoch, who led the city's Olympic bid, to investigate making a bid for the race.
But the campaign announcement was immediately shot down by Australia's racing establishment.
"We [Melbourne] have a contract with [global Formula One boss Bernie] Ecclestone until 2020 and we have another five-year option," said Ron Walker, the chairman of the Australian Grand Prix Corporation. "It's a long time before Sydney could even think about it".
Mr Baird refused to say whether he had raised the idea with Formula 1 bosses before he announced it on Friday.
"I say don't underestimate us," he said, in response to Mr Walker's comments.
It is not the first time a NSW Premier has talked up the state's chances of winning the event: Labor premiers Morris Iemma and Kristina Keneally both declared similar intentions.
The then-Liberal opposition criticised Ms Keneally's announcement as "uncosted" and "uncontemplated".
Labor had planned to run the race at Homebush, west of the CBD.
One circuit reportedly under consideration by the Baird government reportedly involves shutting down the CBD and running cars down the length of the Harbour Bridge and down Bridge Street.
But Mr Baird said no decision had been made "at all" about possible routes. "It goes ahead only on the basis that there is significant economic benefit to the state," he said.
The cost of holding the event to the Victorian state government in 2014 was $60 million, or $10 million more than the previous year due to rising costs and falling ticket sales.
Greens MLC Dr John Kaye said a Grand Prix would "seriously disrupt" Sydney residents. "Sydney is in no position to cope with the disruption, air pollution, noise and additional pressure on the road network," he said.
Victorian Sports Minister John Eren said the bid was nothing more than an election ploy from the NSW government.
The Liberal government of Jeff Kennett in Victoria claimed the race from South Australia in 1995.
In 1989 the Greiner government said a new motorway facility at Eastern Creek would bring the Motor Cycle Grand Prix to Sydney. It held six races.
But the consortium operating the circuit went bust. And the total cost to the state government of assuming its operations and redeveloping the area around the track was put at $135 million.
A Labor sports minister in the Carr government labelled it "perhaps the most scandalous waste of taxpayers' money in the history" of NSW.
Mr Baird's panel will report back to him by year's end, if his government is returned to office.
With Richard Willingham
