The third threatening letter sent to Lakemba Mosque in the past month made calls to kill or deport Muslims and referenced Australian convicted terrorist and mass murderer Brenton Tarrant, who killed 51 Muslims in Christchurch in 2019.
Police have started investigating the threat after taking the letter for forensic examination.
The threat was made just days after One Nation leader Pauline Hanson made universally condemned comments, saying there were "no good Muslims".
The letter appeared to reference her comments, reading "the only good muslim (sic) is a dead one".
Prime Minister Anthony Albanese drew a direct line between the senator's rhetoric and others' violent threats towards Muslims.
"It legitimises it," he told ABC Radio Sydney.
"It mainstreams it. It's outrageous that people just going about commemorating their faith, particularly during the holy month for Muslims of Ramadan, are subject to this sort of intimidation."
Senator Hanson, who was suspended from the Senate in 2025 for a burqa stunt, also referenced Lakemba and claimed without evidence that people would "feel unwelcome" there.
That jars with an invitation from the local mayor for the senator to attend the Muslim majority suburb's widely popular Ramadan night markets, which begin on Thursday.
Islamophobic comments combined with a third targeted threat created "very worrying times", the local mayor said.
"It is very challenging times for our country and we need to just make sure we look after one another," Canterbury Bankstown Council mayor Bilal El-Hayek told ABC TV.
"This is no time for us to seek division at the moment and, unfortunately, Pauline Hanson loves a stunt and she did exactly that."
Police said religious sites including the mosque and community events would continue to be patrolled.
Muslim leaders said their community was already reeling after police violently apprehended a group of men who were peacefully praying at an anti-Israel protest on February 9.
NSW Premier Chris Minns used a message welcoming Ramadan to detail why he would not apologise for the policing on the grounds he did not believe officers had deliberately caused offence.
"Over the last week, I've had many meetings with leaders of our Muslim community ... I won't lie, they've been difficult conversations," the premier wrote.
"The Muslim community have told of their sadness and hurt ... what we both agreed on is that there are steps we can all take to ensure that it doesn't happen again."
Sheikh Wesam Charkawi, who was leading the prayer when police intervened, questioned who Mr Minns had met with and said the Muslim community was not a photo opportunity.
"Further, for the past two years, you have not even pretended to conceal your posture toward this community," he wrote.
"The escalation, the rhetoric, and the reflexive defence of force have been consistent. Please do not now pivot to language of innocence when the pattern is plain."