Stuart Ayres has resigned as NSW trade minister and deputy Liberal leader after a draft government review into the John Barilaro US job appointment found he may have breached the ministerial code of conduct.
Premier Dominic Perrottet said the resignation followed a briefing he received from the Department of Premier and Cabinet on Tuesday.
The draft report "raised a concern as to whether Mr Ayres had complied with the ministerial code of conduct", the premier told reporters on Wednesday.
"When I put these matters to Mr Ayres, he offered his resignation from the ministry and as deputy leader Parliamentary Liberal Party," he said.
Mr Ayres has also relinquished all his porfolios which include Enterprise, Investment and Trade, Tourism and Sport, and Western Sydney.
Mr Perrottet referred to his much-touted independent review led by former NDIS Commissioner Graeme Head as "raising questions" about Mr Ayres' conduct.
"The review clearly demonstrates that the process was not at arm's length", he said.
He noted that Mr Ayres "denies any wrongdoing at all" in the recruitment process that saw Mr Barilaro given the plum job over public servant Jenny West, who was told last year she had been chosen for the coveted trade commissioner's role in New York.
Mr Ayres issued a statement denying he had breached the ministerial code.
"However, I agree it is important that this matter is investigated appropriately and support the premier's decision to do so.
"I have always applied the highest levels of integrity in my conduct as a minister."
Mr Perrottet did not specify how Mr Ayres had potentially breached the ministerial code of conduct.
"There is no doubt that there are questions raised ... and appropriately I've called for a review ... whether there has been a breach," he said.
The appointment of former deputy premier Mr Barilaro to the US trade envoy position with an annual salary of $500,000 earlier this year has been an escalating controversy that's plagued the government for nearly two months.
Mr Barilaro relinquished the position in June amid allegations of "jobs for the boys", conceding his appointment was untenable and a distraction.
But Mr Perrottet defended not sacking Mr Ayres earlier.
His resignation comes just three days after fair trading minister Eleni Petinos was sacked over bullying and workplace harassment allegations.
"I make decisions on what I believe is right and I'll always do that no matter what the political cost to me," Mr Perrottet said.
"When issues arise and mistakes get made, ministers are accountable for that and minister Ayres has paid a very heavy price."
The recruitment process is also the subject of a NSW parliamentary inquiry which resumed on Wednesday, with Investment NSW CEO Amy Brown giving evidence for a second time.
Mr Perrottet said a new deputy leader would be elected next week but did not say if a cabinet reshuffle was on the cards.
Despite the unfolding crisis, he maintained his government was strong and voters should look at his "track record".
The latest setback for the government comes just weeks after former Liberal minister John Sidoti was found to have engaged in serious corrupt conduct by the Independent Commission against Corruption.
"This is a difficult time for us but ultimately we're a very good government.
"We've turned around our state.
"You're judged based on your track record and where you're taking the state. I'm very proud of my term," he said.
