Fire and Rescue NSW (FRNSW) crews and a hazmat team arrived at Wattle Lane, Ultimo, on Friday night.
Two childcare centres are located metres from Wattle Lane: the KU Wattle Lane Children's Centre and the Magic Pudding centre on McKee Street.
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FRNSW Inspector Chris Sedgwick said the asbestos material appeared to have been dumped.
"We covered it with black plastic and then sand to stop any fibres blowing away with the winds we had last night," he told AAP on Saturday.
An Environment Protection Authority spokeswoman said the authority had provided advice to the City of Sydney about how to handle the clean-up.
The dumping location is about two blocks from the city's waste management depot.
