A large bushfire burning near Newcastle, which forced the city's airport to close and caused residents to shelter in their homes, was downgraded in severity to "watch and act" on Sunday evening.

Though the fire had begun to subside with crews "slowly gaining the upper hand", strong southerly winds were expected overnight, pushing the fire north.

On Monday morning the fire was downgraded to 'advice' and was being controlled by the Rural Fire Service.

The Bureau of Meteorology had on Sunday issued a severe weather warning for damaging winds to Newcastle, with gusts averaging 60 to 70 km/h, while peak gusts could reach 90 km/h.