commuters will be given the option to register transport smartcards that can store personal details such as home addresses, mobile numbers and travel habits.
A similar system, London's Oyster card, has been criticised for its use by police to track the movements of criminals and by private investigators to monitor cheating spouses.
While civil libertarians are worried about how the information would be used, a spokeswoman for the NSW Department of Transport said it would be managed under the Privacy Act and Sydney commuters could choose to remain anonymous.
''As with e-tags, there will be a record of where and when cards were used, however commuters will not need to register their card,'' the spokeswoman said.
The head of the NSW Council for Civil Liberties, Cameron Murphy, said any personal information recorded had to be rigorously protected.
''In NSW, we do not have a charter of rights, so we don't have a guarantee our privacy is protected,'' Mr Murphy said.
''I don't think these concerns have been sufficiently addressed by the government.''
He said police should have to apply for a court order to view commuter travel information.
At present, only periodical tickets bought online are automatically registered, so they can be replaced if lost or stolen.
A departmental spokesman confirmed that the use of these tickets in Sydney stations was registered.
Sydney was first promised a smartcard for public transport more than a decade ago. The Transport Minister, Gladys Berejiklian, said that by the end of next year ferry users would be trialling the system.
"The benefits for commuters are seamless travel for all modes of public transport, simplicity of use, faster boarding times and commuters will automatically be charged the right fare for their journey," she said.
Ms Berejiklian would not comment on how the smartcard would be priced but said Transport for NSW - the integrated transport authority to be formally created when Parliament next sits - would oversee it.
A University of Sydney public transport expert, Corinne Mulley, said commuters should not be financially penalised for changing their mode of transport, as was the case at present.