NSW Police say an amber alert issued for three children in Sydney's west was the result of a misunderstanding.

About 12:30pm a woman reported her three daughters, aged eight, seven and two, missing after parking her vehicle in a car park at the intersection of Denison Street and Studley Street in Carramar.

Police issued an amber alert for the children two hours later, believing the car, a white Toyota Camry, had been stolen by a man while the girls were in it.

However the girls were located on nearby Bennett Street about 3:00pm.

The ABC has been told the woman appeared to have forgotten where she parked the car and the incident was a genuine mistake.

The woman, who is from Iraq, has been taken to Fairfield Police Station and an interpreter is assisting police to find out what happened.

The children were treated by paramedics and taken to Fairfield Hospital for check-ups with a relative, believed to be their father.

The man indicated to reporters on the scene that the children were OK.