Fifteen of 23 toys for very young children tested by a consumer group have failed basic safety tests and could be choking hazards.
The findings were released by consumer group Choice and the NSW Office of Fair Trading on Monday as a warning in the lead-up to Christmas.
The findings revealed toys designed for children aged under three often failed basic safety tests and were potential choking hazards, with small parts breaking off or coming loose during play.
Australian standards require toys not to present a choking hazard because of the small parts they contain.
Toys must also avoid having small parts that come undone when subjected to tests simulating normal play such as pulling, dropping or pressing.
Choice said the toys that failed its tests were purchased from variety discount stores.
"Discount suppliers and smaller retailers often lack the knowledge and accountability of bigger retailers," Choice chief executive Alan Kirkland said.
"Often the toys they sell are from little-known brands or have no brand information on them at all, making it difficult for regulators to keep track of suppliers."
In the past year, Fair Trading investigators have removed 117 varieties of dangerous toys from shelves across NSW.
"The shop owners selling unsafe toys may simply not be aware of the standards," Mr Kirkland said.
"However, there are no excuses for potentially putting kids' lives at risk."
NSW Fair Trading Minister Anthony Roberts said Fair Trading investigations into potentially dangerous toys being sold would intensify ahead of the Christmas shopping period.