Newcastle City police arrested the man, 27, after a woman and her mother were driving on Smith Street about 7pm.

It is alleged the man approached the car when it stopped in traffic and began yelling abusive comments before punching the driver's side mirror.

Police said the alleged derogatory comments were based on the religion of the two women, who were wearing hijabs.

The 26-year-old woman was able to drive a short distance to get away from the man, but it is alleged he followed and continued to threaten the women.

Six people nearby intervened in the incident and went to the aid of the women.

Police will allege the man punched a witness before fleeing the scene.

The women in the car were shaken but not hurt, police said.

Investigators attended and the 27-year-old was arrested a short distance from the scene.

Police allege that while the attack was specifically aimed at the alleged victims' religion, it was opportunistic rather than planned.

The man pleaded not guilty in Newcastle Local Court on Tuesday and was refused bail on charges of intimidation, assault, larceny and malicious damage.