Police appealed for calm among the Sinhalese and Tamil communities in Australia's largest city following the attack and a brawl on Sunday involving up to 50 people.
Media reports said the Sinhalese man was fighting for his life and likely to lose his eyesight after the attack, which occurred in the early hours of Monday morning in a house shared by Sri Lankan students in the city's western suburbs.
Another student suffered acid burns to the face, a stab wound to the stomach and a broken ankle after five men forced their way into the house, police said.
A third managed to escape the house uninjured and contact police.
Sri Lanka's Consul-General in Sydney, Gothami Indikadahena, said none of the occupants were believed to be involved in political activities and the attack was a disturbing development in Australia's Sri Lankan community.
"This is a very tragic incident, these boys were just sleeping," she said.
"We want to contain these incidents because we are a united country