SYDNEY—The exchange, captured by CCTV camera, lasted only seconds.

A limousine driver, unknowingly infected with the highly contagious Delta variant of the coronavirus, and another man passed close to one another at an indoor mall near Sydney’s Bondi Beach. Both stood near each other for a short time, and one of them appeared to move through the airspace the other had occupied. The brief interaction was enough for the second man to contract the coronavirus.

For Australian health officials, who described the CCTV footage and the method of transmission, it was a warning sign that the tactics that helped to crush all previous outbreaks may not work this time.

Within days, authorities locked down the entire metro area of Sydney for the first time in a year, as the virus spread faster than they could trace and isolate people at risk of infection. A birthday party in one home resulted in 27 people at the event getting infected. A seafood supplier became a hot spot, with people who received its deliveries urged to get tested. Government staff were told to isolate after the local agriculture minister dined in a pizzeria attended by a person with the virus.

A sign for a Covid-19 testing clinic is seen in Sydney’s Bondi Beach area.

A sign for a Covid-19 testing clinic is seen in Sydney’s Bondi Beach area.

Photo: Agence France-Presse/Getty Image

“We know that even the best contact tracers in the world can’t stay a step ahead unless we put this in,” said Gladys Berejiklian, premier of New South Wales state, which includes Sydney, when announcing the lockdown on Saturday.

Although Sydney’s outbreak is small by global standards, health officials are alarmed that the Delta variant is spreading faster and more widely than anything they have seen previously. Ms. Berejiklian said the variant is at least twice as contagious as coronavirus strains that Sydney has battled before. Early infections suggest it can spread via fleeting interactions, health officials say, which limits the effectiveness of contact tracing.

U.S. health officials have also said the Delta variant is a big threat, and some U.S. jurisdictions have recommended that even vaccinated people wear masks indoors to stop the variant from spreading.

Covid-19 strain known as Delta is in at least 60 countries including the U.S. and likely to spread world-wide, Covid-19 Genomics UK Chair Dr. Sharon Peacock tells WSJ's Betsy McKay at the WSJ Tech Health event. The Wall Street Journal Interactive Edition

More than 170 people in New South Wales, which has more than eight million people overall and about five million in Sydney, have contracted the coronavirus since the Delta outbreak began in mid-June, alarming health officials in a state where recently there had been no local transmission of the virus. The outbreak is now offering a case study in how quickly the Delta variant can spread in a lightly vaccinated population despite aggressive contact tracing, mask mandates and social distancing.

Australia has fully vaccinated just 5% of its population, according to Our World in Data, lagging behind other developed countries such as the U.S. and U.K., where nearly half are vaccinated. Australia has successfully controlled the virus in the past by closing its international border and requiring returning citizens to quarantine in hotels, but its vaccine rollout has been slow in part because the AstraZeneca PLC vaccine—which unlike some other vaccines can be made in Australia—was deemed inadvisable for people under 60 because of fears of rare blood clots.

Australian officials have said they would like people to receive at least their first vaccine dose by the end of the year. Analysis from the public-health agency in England suggests vaccines provided significant protection against the Delta variant after two doses. But British scientists estimate the Delta variant spreads 40% to 80% faster than the Alpha variant, which itself was more infectious than the original coronavirus strain. Another analysis from Scotland found that Delta approximately doubles the risk of hospitalization compared with Alpha. Some scientists say it is too early to tell whether Delta is more lethal than other strains, though it could lead to more deaths just because it is more infectious.

The area around the Sydney Opera House was mostly deserted on June 27 due to the coronavirus lockdown.

The area around the Sydney Opera House was mostly deserted on June 27 due to the coronavirus lockdown.

Photo: Getty Images

Epidemiologists say the infectiousness of Delta could prompt authorities to lock down cities earlier and more often, despite the damage that inflicts to an economy. It also reinforces how mass vaccination is required for life to return to some sense of pre-pandemic normalcy, they said.

“Despite the fact that they’ve got world-class contact tracers and a really good system, the Delta variant is just too fast for them,” said Adrian Esterman, a professor of biostatistics and epidemiology at the University of South Australia. “Many of us have been saying that the New South Wales approach simply isn’t going to work.”

Sydney’s contact tracers rely on people building a jigsaw of their movements in real-time, such as by using code-reader apps on their smartphones to record when they enter stores. About 350 people currently work in a central contact-tracing team, which has spoken to more than 260,000 people from mid-July last year to mid-June. Interviews with people who have tested positive for Covid-19 are vital in mapping their movements and identifying others who may have been exposed, said an NSW Health spokesperson.

But evidence that the Delta variant is transmitting in brief encounters is a particular problem for contact tracers, said Nancy Baxter, an epidemiologist and the head of the Melbourne School of Population and Global Health at the University of Melbourne. People may not know who they passed in a mall or even remember the encounters, she said.

SHARE YOUR THOUGHTS

What lessons can we learn from the way other countries have handled outbreaks of the Delta variant? Join the conversation below.

“The Delta variant does shift things,” she said.

Authorities in Sydney believe the current outbreak began when a limousine driver who transported international flight crew contracted the virus. While infectious, authorities say the driver visited a cafe, where another woman contracted the virus despite sitting outside when he was inside, and the mall near Bondi Beach.

On June 18, two days after the limousine driver was confirmed positive, officials made masks compulsory on public transit, but warned that the Delta variant could be transmitted just through fleeting contact.

By June 21, authorities were still officially recording just two new cases a day, making Kerry Chant, New South Wales’s chief health officer, optimistic that contact tracing could stay ahead of the virus. But the next day, officials concerned about the transmissibility of the virus started asking anyone who had been to the shopping center visited by the limousine driver in the previous week to get tested.

As cases climbed, the premier announced a lockdown for certain parts of Sydney on Friday and expanded it to the rest of the city the next day.

Leaders in New South Wales have relied more on contact tracing than officials in other Australian states. In Melbourne, Australia’s second-biggest city, authorities have been quicker to lock down the city to stamp out the virus. The approach has been successful, but has also been criticized for being too heavy handed and detrimental to businesses.

Cars lined up at a Covid-19 testing facility at Bondi Beach on June 26.

Cars lined up at a Covid-19 testing facility at Bondi Beach on June 26.

Photo: EPA/Shutterstock

Sean Woodland, 51 years old and a comedian, went to a pub in Sydney to celebrate his friend’s birthday on Wednesday night and checked in using a QR code on his phone. On Friday night, he received a text message from local health authorities informing him that he had been exposed to the virus at the pub. He was deemed a close contact and was told to get a test immediately and isolate for 14 days, regardless of the result.

Mr. Woodland, who got a Covid-19 test that came back negative, didn’t have any major complaints about the contact tracing, though he said some of the messages he received were unclear about how many Covid-19 tests he should receive over the 14-day period. Still, Mr. Woodland was concerned about the possibility that he could have spread the virus before he was told to self-isolate.

“You could see how very quickly it could have gotten out of hand,” said Mr. Woodland, who had a gig at a pub and ate lunch with a friend before he was told to isolate. “I imagine they contacted us as soon as they could.”

Write to Mike Cherney at mike.cherney@wsj.com