Dallas McInerney, a factional ally of federal Liberal leader Angus Taylor, has quit less than a day after an anti-corruption probe was launched into longstanding allegations of misconduct involving members of the NSW Liberal branch.
He had also been the chief executive of Catholic Schools NSW, which confirmed to AAP on Thursday he would no longer be in the position.
"The board has approved interim governance arrangements while this (Independent Commission Against Corruption) process is underway," Catholic Schools NSW said.
"As part of those arrangements, Mr Dallas McInerney will temporarily step aside from the exercise of his day-to-day responsibilities as chief executive officer."
Less than a year out from state elections, NSW Liberal leader Kellie Sloane described the ICAC inquiry as a "massive distraction" that was damaging to her party.
"To be absolutely clear that I don't stand for the kind of behaviour that is being alleged," she told reporters in parliament on Thursday.
"This behaviour, if it's proven, is absolutely reprehensible, has no place in the party that I lead."
Ms Sloane said she had been opposition leader for less than a year and was not privy to any details of the accusations.
"I'm fairly new to this game. I'm not a career politician. This is not the world I've lived in," she said.
The inquiry was sparked when state Liberal MP Ray Williams in 2022 used parliamentary privilege to claim powerbrokers within his party were engaged in branch-stacking and improper local council dealings.
Property developer Jean Nassif was alleged to have drawn on his political connections through donations to facilitate favourable planning decisions.
The claims led to a parliamentary inquiry in 2023 that engaged professional process servers to search for then-Liberal premier Dominic Perrottet's brothers, Jean-Claude and Charles, without success.
The commission's probe will scrutinise political donations by other figures, including Mr McInerney and hotelier Michael O'Hara, between 2019 and 2023.
The anti-corruption body will also assess whether political donations from Mr Nassif and his development company Toplace were accepted by Liberal Party members between 2020 and 2023 in return for outcomes he was seeking at the Hills Shire Council.
The developer allegedly sought to damage the reputation of former transport minister David Elliott and to remove then-building commissioner David Chandler.
Developers are banned from making political donations.
Premier Chris Minns refused to speculate on the ICAC process, saying the Labor Party had also been embroiled in its share of corruption scandals and needed to be politically humble.
"It's important that for our political organisation, there is a strong cop on the beat," he said on Thursday.
Operation Rosny is also examining a third allegation involving another Sydney council involving the conduct of a current and a former Labor councillor accused of blackmail.
One of the councillors, Sharangan Maheswaran, was a former lawyer at Mr Nassif's collapsed company.
Mr Minns has asked his party to temporarily suspend the members until the investigation is concluded.
Mr Nassif left Australia for Lebanon in 2022 but is being pursued by NSW Police after a two-year fraud investigation.
A warrant has been issued for his arrest, while 57 companies linked with Toplace are in administration.
The inquiry is due to run for eight weeks starting on July 27.
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