Ms Keneally is from the Labor Party’s Right faction and was chosen earlier tonight as its candidate to challenge Mr Rees in the vote on the leadership.

After the vote, she thanked her colleagues and said she would have more to say at a press conference later tonight.

The Right faction met about 4.30pm to decide who would challenge Mr Rees. This was followed by a full caucus meeting for a vote on the premiership. A spill motion for the leadership was carried 43 - 25; Ms Keneally won the vote for the top job 47 - 21.

Ms Keneally, who had replaced Frank Sartor as the Planning Minister, is perceived as being close to the MP powerbrokers Joe Tripodi and Eddie Obeid.

A push by Mr Sartor to challenge Mr Rees for the top job was rejected.

Earlier, Ms Keneally walked out of the Right caucus flanked by female MPs Tanya Gadiel, Angela D'Amore, Karyn Paluzzano and others, refusing to respond to questions about the outcome.

After the Right's meeting, Mr Sartor said he would serve out the rest of the term in Parliament.

"I think it's important we resolve the matter and I'm looking forward to a more peaceful Christmas than I might have otherwise had," he said.

The Right caucus's returning officer Amanda Fazio refused last night to reveal the margin of Ms Keneally's win over Mr Sartor to either reporters or MPs.

This morning, Mr Rees held a press conference vowing to fight for his leadership.

He attacked those who had been undermining his leadership and called them a "malign and disloyal group".

"Should I not be Premier by the end of this day, let there be no doubt in the community’s mind that any challenger will be a puppet to Eddie Obeid and Joe Tripodi," Mr Rees said.

Mr Rees said today that any attempt on his leadership was "handing control of the state to Eddie Obeid and Joe Tripodi".

Ms Keneally was born and raised in Ohio in the United States.

A furious Mr Rees hit back at the "treachery and disloyalty" in the caucus in a blistering address to the media.

The situation today led to Prime Minister Kevin Rudd telling NSW "to get your act together".

Last Saturday’s Herald/Nielsen poll showed the Premier had not achieved a bounce from his decision to sack Mr Tripodi and to ban developer donations.

Andrew Clennell is the Herald’s State Political Editor.

- with Brian Robins