The incident happened on Friday at the Raj Mahal Indian Cultural Centre in Woolgoolga, which has a large Sikh community.
The vandals used a 200-year-old sword to destroy rare Indian paintings, ancient musical instruments and statues collected over the past 25 years by Salinder Singh Salindera, according to the Sydney Morning Herald newspaper.
After damaging the artifacts the vandals set off fire hoses to flood the building.
They also destroyed a rare 1.3 sq mt marble replica of the Taj Mahal, which cost Salindera 45,000 Australian dollars.
"A lot of the items were priceless," Salindera said.
One-third of Woolgoolga's 15,000 residents are of Indian descent and racial tensions are relatively low.
Police are investigating the case.