The 46 million cigarettes, said to be worth more than $30 million, were seized from four containers at the NSW border in June and July, police said on Tuesday.
The seized trove coincided with Premier Chris Minns vowing to stub out a ballooning black market of cheap cigarettes which has been linked to gang violence, robberies and firebombings.
He wants to strengthen laws to enable health ministry officials to immediately close down businesses selling illicit tobacco for up to four weeks.
Magistrates could then issue court orders that extend the closures for up to a year, Mr Minns said.
His blueprint would also give some powers to landlords to evict tenants selling illicit cigarettes.
For serious offenders, the government will push through prison sentences of up to seven years and $1.5 million fines.
"I've listened to the community and others who have suggested to us that (police) are fighting with one hand tied behind their back," the premier told reporters.
"They need tougher rules, tougher laws in place when they identify and bust up a criminal racket."
He described the illicit market and the violence it has inspired as "blatant lawlessness that needs to stop".
The updated legislation mirrors penalties for illegally selling vapes in the state.
The opposition flagged similar proposals in June with a bill the premier said deserved serious consideration.
The government kicked off a mandatory licensing scheme on July 1, requiring all retailers selling tobacco and smoking products to hold a permit or risk fines more than $10,000.
Tobacco prices have been driven up by a federal excise topping $1.40 a cigarette in March, before shop mark-ups, with the average pack of 20 costing about $40.
The excise has increased from $16 to $28 a pack in six years but total revenue is going backward as consumers flee to the black market.
Revenue from the tobacco tax peaked at $16.3 billion in 2019/20 but is projected to dip to a little more than $7 billion in 2025/26.
Treasurer Jim Chalmers has ruled out lowering the excise.
Along with the tobacco tax, landmark federal laws that took effect in October mean vapes can only legally be sold through pharmacies.
Federal law enforcement agencies have confiscated about eight million vapes, valued at more than $230 million, in a national crackdown since the start of 2024.
The cigarettes recently seized in NSW are believed to be linked to a syndicate also involved in drug trafficking, with a 42-year-old man charged with additional offences over the haul on Monday.Â
