Australian shares fell more than 1% on Friday, their most so far in December, as a new coronavirus cluster in Sydney revived movement curbs and dimmed hopes of a speedy economic recovery.

The S&P/ASX 200 index declined 1.2% to finish the day at 6,675.50. However, for the week, it added 0.5% in its seventh straight weekly gain.

Sydney, Australia's largest city, has detected a new virus cluster, putting the states back on alert and raising concerns about the faster-than-expected recovery projections made just a day earlier."The spike in COVID-19 cases in Sydney's northern beaches reminds us that there are still downside risks to the outlook," ANZ Research said in a note.

Australian states and territories have begun imposing border restrictions, marring Christmas travel plans, risking a travel bubble with New Zealand, and sending travel stocks crashing.

"(The) big concern from investment point of view is that some local leaders are reacting to populist approaches rather than doing what is best for the Australian economy," said Michael McCarthy, chief market strategist at CMC Markets and Stockbroking.

Among losers, heavyweight financials were the biggest drags on the index, with all the "Big Four" banks shedding between 1% and 2%.

QBE Insurance Group was the top loser in the sub-index, declining 12.5% after it warned of an annual net cash loss of $780 million on higher catastrophe-related costs.

Energy, real estate, and technology stocks were among the other losers.

Gold stocks added 1.1% on overall strength in bullion.

New Zealand's benchmark S&P/NZX 50 index lost 1.6% to settle at 12,682.0.

Dairy producer a2 Milk Co dragged the benchmark down, losing 22% in its worst session in more than a decade after it cut its half-year revenue outlook on weak informal China demand.