Police were negotiating with the inmates and hoped the standoff could be resolved without further injuries, Police Superintendent John Gralton said.
The riot at the detention center north of Sydney started at 8.30 p.m. on Sunday. Eight inmates surrendered by Monday afternoon but another 12 had not, he said.
The union representing the guards said inmates stole keys from an officer and took garden tools, including a hedge trimmer and shovels from a maintenance shed. Public Service Association general secretary Stewart Little said the group targeted known sex offenders.
"It seems a very sudden and unprovoked incident," Police Superintendent Tony Joice said. "Identifying the means and reasons why the assaults have taken place is part of the investigation," he added.
Gralton said five injured inmates were taken to hospitals and one was in in intensive care. Injuries included stab wounds, a dislocated ankle and a broken nose, officials said.
Inmates who participated would be charged with rioting, an offense that carries a potential maximum of 15 years in prison.
The Frank Baxter Juvenile Justice Center at Kariong has a capacity of 120 inmates. Police have quarantined the armed detainees in a building within the complex, Joice said, and all inmates have been accounted for.