Photographs show scenes from today's ICAC hearing.Photograph shows Eddie Obeid leaving the building.Photograph by Dean Sewell.S.M.H.News.Taken Monday 5th November 2012.

At the centre of the corruption inquiry ... Eddie Obeid. Photo: Dean Sewell

A SENIOR NSW Labor official has called for a ''one-strike'' policy for misbehaving members and urgent action on other party reforms following evidence at a corruption hearing involving the former ministers Eddie Obeid and Ian Macdonald.

John Graham, the party's Left faction assistant secretary, said the hearings at the Independent Commission Against Corruption had laid bare a ''rampant culture of self-interest'' within the former Labor government.

He said they confirmed the need for Labor's parliamentary leader to be directly elected by members to curb the influence of factional powerbrokers.

''I have spoken to many party members recently who are feeling distressed and angry at the state of NSW Labor,'' Mr Graham told the party's Hunter Regional Assembly on Saturday. ''I share those feelings. I do believe that these events give us a chance to drive a permanent change in the culture of NSW Labor.''

The commission is investigating the circumstances surrounding the issuing of coal exploration licences by Mr Macdonald from which the family of Mr Obeid is alleged to have stood to make up to $100 million. Evidence from the former premiers Morris Iemma and Nathan Rees has outlined the factional system which empowered Mr Obeid, who was a leader of a sub-grouping within the Right nicknamed the Terrigals in reference to the location of Mr Obeid's beach house where they first met.

The Terrigals dominated the Right faction caucus, which in turn dominated the full caucus, delivering Mr Obeid enormous power to make and break premiers and influence government decision-making.

Mr Graham described the system as ''a confidence trick that resembled a Russian matryoshka doll'' which ''has to be eliminated'' from the party.

He made apparent reference to the Wollongong MP Noreen Hay convening meetings of the Right in defiance of an edict by the NSW Labor general secretary, Sam Dastyari, that faction meetings should cease. ''We can't accept an attempt to rebuild a low-rent version of the Terrigal model in Macquarie Street, even though that is being attempted now,'' Mr Graham said. ''It has to be stopped.''

The change to election of the parliamentary leader by the rank and file, rather than the Labor caucus, was now a ''necessary measure'', he said. A committee within NSW Labor is examining the proposal.

Following evidence at the commission, Labor suspended Mr Obeid's membership at the request of the Opposition Leader, John Robertson. Mr Macdonald's membership was suspended following an earlier ICAC inquiry.

Mr Graham called for Labor to ''adopt a consistent and tough one-strike policy for misdemeanours''.

He argued that Labor should break from convention and hold a party conference in 2013, an election year, as a platform to respond to the issues raised at ICAC.

The comments came as the Foreign Affairs Minister and former NSW premier, Bob Carr, warned the ICAC revelations could damage the government at next year's federal election.

''I think the party is clearly challenged; the ICAC inquiry is one subset of those challenges,'' Senator Carr said.