Lake Macquarie council cancelled its 2021 Lake Mac Festival less than a fortnight out from it being held.
The council said the "ongoing COVID-19 risk" had left it with little choice but to scrap the series of events planned to be held in the days before Australia Day.
The council is understood to have been planning fireworks displays and food markets around the lake.
"Our community really enjoys coming together at our local events, so it is unfortunate that we can't proceed," Lake Macquarie mayor Kay Fraser said on Thursday.
"However, we must keep people safe first and foremost and while this is a difficult decision, I believe this is the right one for our community."
An invite-only citizenship ceremony at Rathmines Theatre will proceed as planned on Australia Day, welcoming more than 40 new citizens from across the globe.
"Welcoming people from all cultural backgrounds and walks of life adds diversity and richness to our community, and seeing their joy and pride as they become Australian citizens is a true privilege," Cr Fraser said.