The fast-spreading bushfire at Duck Creek in the Pilliga forest was burning about 17km south of the town of Narrabri, home to more than 12,000 people, and 21km west of Boggabri on Tuesday afternoon.
The fire was downgraded from emergency level to a watch and act about 1pm as crews had success controlling pockets of the fire when it entered farmland from the Pilliga.
"With easing conditions across the fire ground, firefighters are gaining the upper hand," the NSW Rural fire service said.
Smoke from the blaze was being carried as far as the Hunter and Sydney regions, affecting air quality ahead of a forecast southerly change.
The fire had burned through more than 130,000 hectares (321,000 acres) and authorities warned embers from the blaze were being blown well ahead of its front, causing a danger to homes and prompting a warning to residents to seek shelter.
A severe thunderstorm warning was issued for the area on Tuesday afternoon, with potentially damaging winds, hail and heavy rainfall.
While rain was beginning to fall across northern parts of the fire, the RFS said increasing storm activity could cause the fire to behave erratically.
Overnight the blaze generated a thunderstorm from a pyro-cumulonimbus cloud system.
Residents of Baan Baa, Willala, Goolhi, Rocky Glen and Stannix Park were told on Tuesday morning that their lives were at risk and it was too late to leave, before the warning was downgraded. Evacuation centres have been set up at Narrabri and Gunnedah.
Jake Byrne, a volunteer fire fighter in Baan Ba, said the blaze had been concentrated in the bushland near the village located 30km north-west of Boggabri on the Kamilaroi highway, and there hadn't been any threats to houses on the outskirts of town yet.
"At the moment everyone in town is pretty cool, calm, and collected," he said, while stopping at a local pub to grab lunch for the crew fighting the blaze.
Rick Cunningham, whose home and business is just south of Narrabri, said he received a message last night warning his family to evacuate. They saw a mushroom cloud and then flames forming on the horizon, but then the wind turned and blew the fire south so they decided to remain in their home.
"Every hour my young fella who has just turned 12 is going outside and putting a little flag up to see which way the wind is going," Cunningham said. "There's supposed to be rain coming so hopefully we get a sprinkle."
RFS spokesperson Greg Allan said the bushfire had been fanned by northerly winds overnight and during the morning, pushing the blaze to the south.
It was unsafe for building-assessment teams to access the fireground and work out if any properties had been damaged or destroyed, Allan said.
The Narrabri Shire mayor, Darrell Tiemens, who spent the night fighting the fire with other volunteers, said the blaze grew "very, very quickly" and had created its own weather system.
"Luckily, I don't think we've had any homes lost yet - although we just don't know," he said.
Council staff and other workers had been doing 24-hour shifts to keep services online as the bushfire caused power outages along many local roads, Tiemens said.
"Hopefully rain later this evening will bring a reprieve, it's just very unpredictable," he said.
The temperature hit 35C in Narrabri on Tuesday, however showers and a possible thunderstorm were expected in the afternoon and evening.
On Monday smoke from the fire could be seen across an area spanning hundreds of kilometres, including Tamworth, Walcha, Armidale and even coastal communities near Port Macquarie.
There were 63 fires burning across NSW on Tuesday morning, including 15 that were yet to be contained. Large parts of the state have been affected by bushfire smoke.
More than 450 firefighters and other personnel were working to control the blazes in easing conditions for the north of the state.
No total fire bans applied but a high fire danger rating was in place for an area stretching from Sydney's west to the Victorian border.
Temperatures reached into the mid-30s for Sydney, parts of the mid-north coast, and northwest and central-west slopes and plains.
Comment: At the same time in the north of the country: Australia summer floods: Airport submerged and crocodiles seen after record rain in Queensland - 7 FEET of rainfall dumped from Cyclone Jasper