The girls, aged 2 and 7, suffered critical injuries when a car driven by their mother was struck at a level crossing at Coralville, north of Taree, on Thursday morning.
The 30-year-old mother and another daughter, aged 6, are stable with minor injuries.
The 7-year-old has been placed in an induced coma at Newcastle’s John Hunter Hospital after suffering multiple injuries including to her head and neck.
The mother is believed to be pregnant.
Images from Coralville show a white car with P-plates lying on its side in a paddock beside the railway track, alongside the stationary freight train.
The level crossing has no warning lights or boom gates.
Local Sue Bennell said lights were needed.
“It’s always been really hard to see when you get up to the top of the embankment and you’re almost right on the track,” she told the Seven Network. The train driver was treated for shock and taken to Manning Hospital for mandatory testing.