Nathan Lyon took 5-68 as a dominant Australia dismissed New Zealand for 251 in their first innings, before the home side then extended their lead to 243 by the close of play on day three of the third Test in Sydney.

Offspinner Lyon was the standout bowler, claiming the 17th five-wicket haul in his 96 Test matches, but his first on his home Sydney Cricket Ground

New Zealand resumed the day 63-0 in their first innings, still trailing their hosts by 391 runs, and Lyon swiftly set about his work, bowling Tom Blundell for 34 in the fifth over of the day.

Tom Latham (49) and Jeet Raval (31) rebuilt before departing within three balls of eachother, with Lyon first trapping Raval lbw and then Pat Cummins (3-44) claiming stand-in skipper Latham.

Ross Taylor (22) and Colin de Grandhomme (20) were both guilty of not cashing in on starts, but Glenn Phillips - flown over from New Zealand on the eve of the Test to cover for the sick Kane Williamson and Henry Nicholls - impressed with 52 on his Test debut.

Phillips did enjoy some luck, however, dropped twice by the normally reliable Lyon and earning another reprieve just before tea when he was caught in the deep off a James Pattinson no-ball.

He brought up his maiden half-century with a brilliant pull shot through square but two balls later but was clean-bowled by Cummins soon after.

Lyon then returned after tea to send back tailenders Will Sommerville and Neil Wagner, both for ducks, in a magnificent two-wicket maiden, while he had Matt Henry stumped to end New Zealand's innings and secure his five-for.

Australian openers David Warner (23) and Joe Burns (16) then steered the hosts to 40 without loss at stumps to add to their already healthy lead in the Test and the series.

Australia lead the series 2-0 after thumping wins in Perth and Melbourne and are eyeing up a 3-0 whitewash with two days to play in this Test.