Almost 200 day care centres have been shut down in NSW alone as police investigate links to Islamic State, motorcycle gangs and large-scale fraud.

Suburbs in south-west Sydney were home to the worst-offenders, with four suburbs in the region claiming 114 of the 188 private facilities that were closed.

Police shut down 49 facilities in the Canterbury-Bankstown region, another 25 in Liverpool, 23 in Fairfield and 17 in Auburn.

In one case, the director of the supposed day care was intercepted at Sydney airport, believed to be on his way to fight alongside Islamic State.

Almost 200 day care centres have been shut down in NSW alone as police investigate links to Islamic State, motorcycle gangs and large-scale fraud

Hussain Dandachi, 28, was arrested in relation to a police investigation into a $27 million fraud syndicate and the funnelling of funds into Islamic State.

He pleaded guilty to supplying fake invoices worth more than $100,000 for children who were not in his care, and was sentenced to a minimum jail term of 10 months.

Another family day care was supposedly running in a house with no electricity, while a third address led investigators to an abandoned garage, The Daily Telegraph reported.

The closures have seen the number of NSW Family Day Care services slashed by more than half since 2016, from 420 to 197.

Alee Farmann was charged with knowingly directing the activities of a criminal group - in the form of his alleged Red Roses Day Care scam, which pocketed government subsidies

Handcuffed: Farmann was taken away by police after being arrested at his home

One source described a licence to run a day care centre in NSW as a virtual 'licence to print money'.

The federal government is expected to save more than $674 million annually as a result of the investigation.

They will avoid paying out fraudulent applications for children who were not even students at the facilities applying for funding.

Last month, coordinated raids throughout the south-west led to the arrest of more than 20 people believed to be involved in running or facilitating fraudulent day care centres.

The syndicate is accused of going to extraordinary lengths to conceal the operation

Red Roses Family Day Care director Alee Farmann and two other females were charged for their involvement.

Some 150 parents are now also being investigated in relation to that case after it was determined parents had sold or provided their child's information to the accused.

The NSW government has now implemented a similar process to approving applications for new facilities to Queensland.

Rather than the old online application and cross-checking process, potential applicants are now required to pass a mandatory face-to-face interview.