Three people were killed when a water-bombing plane crashed southwest of Sydney on Thursday, setting off a "large fireball", Australian officials said, as bushfires flared across the country's southeast.

New South Wales Rural Fire Service commissioner Shane Fitzsimmons said authorities lost contact with the C-130 Hercules aircraft, which was operating in the Snowy Monaro region, shortly before 1:30 p.m. on Thursday.

Fitzsimmons said the aircraft owner, Canadian firm Coulson Aviation, was grounding its operations of large air tankers fighting fires in New South Wales and Victoria states "pending review" of the planes.

(Cover: File photo)