That deal is now the subject of an investigation by Queensland’s anti-corruption watchdog.

Corinne Mulholland, the council's manager of strategy and engagement, will take extended leave from the council from September 17 to contest the federal seat of Petrie for the ALP.

Her move comes amid growing disquiet among local coalition MPs, including Home Affairs Minister Peter Dutton, about her high profile in their electorates and access to local decision-makers through her job.

“Once the election is called, I will formally resign from council to comply with my eligibility requirements under the constitution to run for federal Parliament,” Ms Mulholland said, adding that the plan to take leave “was initially flagged with HR in December and has been discussed over a number of months”.

A senior local ALP source told Fairfax Media there had been “intense conflict between (Petrie LNP MP Luke) Howarth, Dutton and the mayor” over Ms Mulholland’s continued employment at the council and the mayor’s apparent favour towards Labor.

“I’ve seen some local political blues, but never anything like this,” the source said.

“There’s been curt words at public events and a lot of studiously avoiding each other.”

Ms Mulholland's political opponents are annoyed she is still in her powerful job while the last ALP challenger for Petrie, Jacqui Pedersen, had quit her more junior council job to campaign.

Ms Pedersen narrowly lost to Mr Howarth in the 2016 federal election.

Mr Dutton said it was clear Ms Mulholland had been campaigning while still being paid by Moreton Bay ratepayers.

"Ms Mulholland should declare how much money she has taken in wages from the council since she was elected as the Labor candidate," he said.

Ms Mulholland controls much of the mayor's diary and oversees the council’s events and marketing operations.

She is a close friend of Shane Newcombe, a donor to the mayor and other councillors whose events company - Moreton Bay Region Industry and Tourism - was given a $20 million outsourcing deal by the council in 2016 without a tender.

Mr Newcombe also chairs Regional Development Australia Moreton Bay, a federally funded business liaison body.

Council insiders have told Fairfax Media that before he received the contract in 2016, Mr Newcombe was given unfettered access to confidential council documents and secretly coached on how to win over the council by a small group of councillors, all of whom had received donations from Mr Newcombe’s family business, local car dealership Village Motors.

Fairfax Media can reveal Ms Mulholland declared a staff conflict of interest over the renewal of that deal this year and recused herself from a review of the service level agreement, the document that sets council’s performance expectations of Mr Newcombe’s company.

In the declaration, dated May 11, Ms Mulholland explained that she had “developed a strong working relationship with Shane Newcombe in his capacity as CEO MBRIT and Chair RDA Moreton Bay. I have been invited to his wedding and asked to MC parts of the reception”.

The “management plan” to deal with this would be “removing myself from undertaking SLA review”.

The declaration was made two weeks before council met to discuss renewing and extending the MBRIT contract.

Ms Mulholland has not responded to questions about what involvement she had in the council’s dealings with MBRIT prior to the May 11 declaration.

Former council staffers said Ms Mulholland had been closely involved with MBRIT as soon as the deal with council was done in 2016, helping Mr Newcombe navigate council processes. These people said some of the reporting burden on Mr Newcombe’s company had subsequently reduced.

Documents obtained by Fairfax Media show that the author of the original SLA in 2016 was not a council staffer or executive, but Mr Newcombe.

A former council manager said the document was virtually untouched by council staff before being signed off by council chief executive Daryl Hitzman.

Mr Hitzman made the final decision over the extension and renewal of the MBRIT contract in May this year, tripling its value to about $23.5 million, after seven councillors declared “perceived conflicts of interest” because they were friends of Mr Newcombe or had attended his wedding the previous week, making the meeting inquorate.

Neither mayor Allan Sutherland nor four other councillors who had received financial support from the Newcombe family over the past two local elections declared conflicts at that meeting or the one in May 2016 that awarded the initial contract.

Queensland's Crime and Corruption Commission confirmed last month it had launched an investigation, which Fairfax Media has established is looking at the circumstances surrounding the renewal of the MBRIT contract.

The council has not responded to questions about its dealings with MBRIT, citing the CCC investigation. It declined to provide a copy of the SLA.

Cr Sutherland received $20,000 from the Newcombe family during the 2016 local election via a secretive funding vehicle called Moreton Futures Trust, and the same amount in 2012.

The trust, which was closely scrutinised during public hearings into allegations of local government corruption at the QCCC last year, also provided smaller amounts to four other councillors, all of whom have been closely linked to the MBRIT deal.

Moreton Bay Regional Council is the third-largest local government in Australia, with a population of about 425,000 and an annual budget of more than $600 million.

Its renewed deal with MBRIT is the council's largest single commercial contract, although it has published no details about it.

Mr Howarth, the Petrie incumbent who retained the seat in 2016 with a margin of 1.6 per cent, said: "We're sure that the Moreton Bay residents will be pleased to hear of the leave and impending resignation (of Ms Mulholland) given that her large salary is being chewed up going towards letting her campaign."