Around 4.7m people in Kashgar are being tested, with 138 asymptomatic cases found so far.
China has been largely successful in bringing infection rates down, but there continue to be small outbreaks.
Xinjiang is home to China’s mostly-Muslim Uighur minority which rights groups say is being persecuted by the government in Beijing.
Schools in Kashgar have been closed and residents are not allowed to leave the city unless they have a negative test report.
The first case in the Kashgar outbreak was an asymptomatic woman working in a garment factory in Shufu county, on the outskirts of the city.
The woman, who was revealed to be infected following what Chinese state media described as “routine testing”, was the first local case detected in mainland China for 10 days.
Widespread testing, which began on Saturday, uncovered another 137 asymptomatic cases.
Asymptomatic cases are not counted in China’s official tally of 85,810 confirmed infections. The country’s death toll stands at 4,634.
More than 2.8m tests had been conducted in Kashgar by Sunday afternoon and the rest will be completed within two days, according to city officials.
Kashgar is in China’s western Xinjiang province, home to ethnic Uighurs and other Turkic Muslims.
The province has a network of detention camps which China says are “re-education” centres needed to tackle extremism. However, rights groups see them as part of a campaign to suppress the culture, language and identity of the Muslim minority.
The US recently blocked some exports from Xinjiang over alleged human rights abuses and forced labor.
While normal life has resumed in much of China, there continue to be small outbreaks that authorities have chosen to tackle with immediate mass testing.
Earlier in October, the city of Qingdao tested its entire population of nine million people
In May, China tested the 11m-strong population of Wuhan, the city where the novel coronavirus was first identified.