Resuming Sunday at 63 without loss, New Zealand lost Tom Blundell early before a double-strike by Australia late in the session left the tourists in danger of surrendering a large first-innings lead on a deteriorating Sydney Cricket Ground pitch.

At the interval, Ross Taylor was 21 not out, and Glenn Phillips was unbeaten on three.

After New Zealand's openers navigated a full session without losing a wicket on the evening of day two, Blundell failed to add to his overnight 34 before getting himself in a tangle from a Nathan Lyon delivery which went through his legs, hit his pad and bounced on to the stumps.

Jeet Raval, in the team for the ill Kane Williamson, and Tom Latham then combined for a 49-run partnership and looked comfortable against Australia's attack until Lyon (2-26) was brought back to bowl. The Australian off-spinner quickly removed Raval lbw for 31. Raval reviewed the decision but the TV umpire confirmed the decision.

Two balls later, Latham's solid innings ended in a soft fashion on 49 when the stand-in skipper chipped straight to Mitchell Starc at mid-on off Pat Cummins to reduce the tourists to 117-3.

It could have been worse for the Kiwis, but Lyon dropped a caught-and-bowled chance from Phillips in the 52nd over. Lyon subsequently needed medical treatment for the thumb on his bowling hand which had been cut during the dropped chance.

On Saturday, Australia's Marnus Labuschagne's stellar summer reached a new peak with his maiden double century before New Zealand rallied. Labuschagne scored 215 off 363 balls with 19 boundaries and a six before his innings was ended amid a late order collapse by the hosts to be all out for 454.

Australia is seeking a clean sweep after winning the first two tests at Perth and Melbourne.