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Homeless people had been camping at Martin Place in central Sydney for more than six months.
State legislators argued the camp was unauthorised and compromised public safety. They granted police powers to remove the tents, but residents began leaving pre-emptively on Friday.
Some said they had nowhere to go.
The man dubbed the unofficial "mayor" of the tent city, Lanz Priestly, said some people would go to "friends' places" or "friends' backyards", but others had no such option.
Debate over what to do with the camp had dragged on for months amid a political dispute between the New South Wales state government and Sydney City Council.
It also generated wider discussion about homelessness in Sydney, which has the second-worst housing affordability in the world, according to one study.
On Wednesday, the state passed new legislation giving police authority to remove those deemed to be obstructing the area. The law came into effect on Friday.
"Homelessness is a major challenge in our community and I am proud of our government's record to help our most vulnerable and of course there is more to do," New South Wales Premier Gladys Berejiklian said in a statement earlier this week.
"However we will not let protesters play political games with those in genuine need of support."
Mr Priestly said authorities were not taking the issue of homelessness seriously.
"They are not looking at the people - they are looking at the tents," he told Sydney's Daily Telegraph.
More than 105,000 people are homeless in the nation, according to Homelessness Australia.