The Baird government is considering legal options to force property developer Jeff McCloy to step aside as Newcastle mayor after a corruption inquiry heard he gave tens of thousands of dollars in illegal donations to Liberal candidates before the last election.
In the strongest sign yet it could sack Cr McCloy from his position, local government minister Paul Toole said on Friday that "we are looking at every possible legal avenue to ensure the needs of the Newcastle community are put first".
"I expect every mayor and councillor in NSW to adhere to the highest standards of honesty and integrity," Mr Toole said.
He urged Cr McCloy to "consider his position".
During a dramatic stint in the witness box at the Independent Commission Against Corruption on Thursday, Cr McCloy admitted giving wads of cash to Liberal candidates before the March 2011 election, including Tim Owen in Newcastle and Andrew Cornwell in Charlestown.
Both men resigned from parliament on Tuesday.
"They all come to see me for money," Cr McCloy said. "I feel like a walking ATM some days."
It is illegal for property developers to make political donations in NSW under laws passed in 2009.
But Cr McCloy insisted that "Jeff McCloy is an individual. He is not a property developer."
A spokeswoman for Cr McCloy declined to comment about the request for him to stand aside.
The ICAC heard on Friday that Liberal MP Robyn Parker, the member for Maitland, returned a $600 donation from local developer Bill Saddington who purchased an auction item at a campaign fundraiser in September 2010.
The inquiry heard that the president of the Maitland State Electoral Conference (SEC), which includes all the Liberal Party branches in the electorate, realised after the auction that Mr Saddington had lodged a development application.
This was reported to the Liberal Party and Ms Parker said "we refunded his donation for the auction prize and also his attendance at the cocktail party".
In a brief stint in the witness box, Mr Saddington attracted the ire of Commissioner Megan Latham over his various explanations about a $4000 payment to a staffer on Mr Owen's campaign.
One of his claims was that the payment was for past and future "invitations" to Liberal Party events, even though he agreed an invoice suggesting the staffer did consultancy work for him was false.
"Today in giving evidence... you have lied repeatedly," suggested junior counsel assisting the ICAC, Greg O'Mahoney.
"I don't think I have, I haven't," Mr Saddington said.
Earlier on Friday, Ms Parker poured cold water on the suggestion that the then Liberal leader Barry O'Farrell was the "big man" behind a $120,000 donation to Hunter Valley candidates.
A December 2010 text message from Mr Owen's campaign manager to former police minister Mike Gallacher referred to the payment from "our big man".
The inquiry has heard allegations this was a reference to embattled coal mogul Nathan Tinkler, whose property development company Buildev allegedly made illegal donations to Mr Owen's campaign.
But Mr Gallacher's lawyer has suggested that "our big man" was a reference to Mr O'Farrell, who he claimed could approve funding from the Liberal Party's head office for key Hunter Valley seats.
Ms Parker, who is not accused of wrongdoing, said it was "inconceivable" that Mr O'Farrell would have been "occupying himself with funding for campaigns" so close to the March election.
The inquiry continues on Monday.