People have been told to leave for central Ulladulla from the towns of Burrill Lake, Kings Point and south of Ulladulla if they are unprepared or have a bushfire plan to leave.
A total fire ban was issued for Sydney, the Illawarra and Hunter regions on Wednesday - something not seen so early in the season in almost a decade.
The fire is moving in an easterly direction, with strong winds fanning the blaze.
More than 500 firefighters worked overnight to control dozens of fires across NSW after gusty winds on Wednesday caused a number of fires to burn out of control, threatening and damaging properties on the state's south coast at Nowra, Ulladulla and Bemboka.
The Ulladulla firefront has burnt through about 100 hectares and properties west of Burrill Lake are now under threat.
NSW RFS Commissioner Shane Fitzsimmons was confident the firefighters would gain the upper hand on the most troublesome blazes, but winds of up to 60km/h were still going to be problematic.
On Thursday, the Rural Fire Service confirmed two homes were destroyed at Bemboka and a third home damaged at North Nowra.
"Our advice - and the images show - it's close to urban areas there".
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The paperwork also notes that the children were found in an oil tank filled with crude oil and had been there for several days. After his wife and daughters were reported missing on Monday and before his arrest, Watts told reporters that he missed them.
An evacuation centre has been set up at the Ulladulla Civic Centre.
Warm, dry conditions and strong winds are being felt across the region, with gusts of up to 140 kilometres per hour recorded at Nowra.
The RFS said firefighters were taking advantage of easing conditions to conduct backburning. Embers may be blown ahead of the fire, creating spot fires.
Police are reminding members of the public to check with the NSW Rural Fire Service before lighting fires as Total Fire Bans may be in place.
Insp Shepherd said properties between Tindal and Eldon Rds on the eastern side of the Gwydir Hwy could be under threat, with ground crews still assessing the threat on the northern side of the road.
A Watch and Act warning has also been issued for a fast-moving grass fire near Jerrara, west of Kiama.
Fire crews have been on high alert, after the entire state of New South Wales was last week declared as either "in drought" or "drought affected", bringing dry conditions.