Opposition environment spokesman Luke Foley said the government and regulator had "sat on information" since May about unacceptable levels of mercury, lead and chromium in the soil at the Grace Campbell reserve at Hillsdale.
"Despite knowing about these very serious risks, the Government and Environment Protection Authority (EPA) failed to inform the local community and families who use the playground," Mr Foley said in a statement on Sunday.
He said testing of the playground's soil showed up mercury, a substance for which there is no safe limit.
The testing also uncovered lead triple the safe amount and chromium two-and-a-half times over the safe limit, he said.
Mr Foley said the contamination marked the second time Environment Minister Robyn Parker "had failed to inform the public about toxic chemicals from an Orica facility".
"Robyn Parker almost lost her job over the Kooragang Island debacle, where she and her department failed to inform the local community about the release of toxic chemicals into the air around their homes," he said.
Grace Campbell Reserve is located nearby the industrial site of chemical giant Orica's former ChlorAlkali plant.
"Mercury emissions from the former ChlorAlkali plant at Botany constitute the most serious ground contamination issue in NSW," Mr Foley added.
The government and EPA are being sought for comment.
The EPA rejected claims of a cover-up on the issue.
"The EPA's tests confirmed that contaminants HCBs (hexachlorobenzenes), metals and mercury are below the health investigation levels," it said in a statement on Sunday.
The EPA's chief executive Barry Buffier said testing had been carried out at a Sydney water easement, not a children's playground as claimed in media reports.
"The playground depicted ... is not the Sydney water easement where EPA testing has been undertaken and was not associated with any elevated test results," he said.
"In my opinion this is sensationalist reporting that causes unnecessary concern in the community."
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