A further 55 men were issued Rail Infringement Notices for offensive behaviour, the police added.
The police said that they were alerted to the group boarding a train at the Artarmon railway station and waited for the train to arrive at the North Sydney railway station, which is four stops away.
On arrival, members of the public were directed to leave the train while officers boarded and contained the group to a few carriages.
The police said that the group all had their faces concealed and were carrying a number of items, including shields and a flag.
The Australian Broadcasting Corporation (ABC) reported that the group of people were wearing all black, including balaclavas. It quoted NSW Premier Chris Minns as saying that there was absolutely no tolerance for this behaviour.
"Normal people don't celebrate Australia Day with a balaclava on," he said. "Due to great police work millions of Aussies were able to celebrate and come together without a potentially ugly confrontation."
Held every year on Jan. 26, Australia Day marks the anniversary of the 1788 landing of the British First Fleet in the country.
(With UNI inputs)