The NSW opposition leader says the 25 per cent swing against the Liberals at the Miranda by-election sends a clear message to Premier Barry O'Farrell.
Labor's Barry Collier has reclaimed his old seat in the by-election on Saturday triggered by the resignation of Sports Minister Graham Annesley.
Mr Collier defeated Liberal candidate, solicitor Brett Thomas, as widely expected after Mr Annesley quit government mid-term to become chief of the Gold Coast Titans NRL club.
State Labor leader John Robertson said the swing was a clear message to the government from the people of Miranda.
"In the last two-and-a-half years Barry O'Farrell and his government have taken families for granted," Mr Robertson said in a statement.
"Barry Collier was an outstanding local candidate who ran a strong community campaign, standing up for the Shire against the Liberals' cuts to services."
Mr O'Farrell had earlier in the week predicted voters in the southern Sydney electorate would give his party a "kicking".
But he said the backlash was against an MP quitting and causing people to return to the polls, not against his government.
Congratulating Mr Collier on Saturday evening, Mr O'Farrell again sought to distance his government from the expected drubbing.
"The result principally reflects voters' understandable disappointment and anger at the unexpected, mid-term resignation of the former Liberal MP and the local community's concerns about allegations involving Liberal members of Sutherland Shire Council," he said in a statement.
"I congratulate Barry Collier on his victory. Barry's experience and profile in local politics clearly contributed to his win."
There have been reports property developers with Liberal Party connections have been shown special treatment by Sutherland Council and its Mayor Kent Johns.
Mr Thomas, who told AAP he won't contest the seat again, said the 48,625 enrolled voters in Miranda were angry Mr Annesley quit half way through his first term.
The former member's profile also helped him regain his seat, he added.
"(The loss) was a combination of factors," Mr Thomas said.
"There was that anger and disappointment at Graham Annesley's resignation and there was also concern about allegations against the local Liberal council."
Mr Collier, who held the seat from 1999 to 2011, has previously said Mr Annesley's resignation showed the O'Farrell government had taken the seat for granted.
At 9pm (AEDT) on Saturday with 19 of the 21 booths reported Mr Collier had 55 per cent of the two candidate-preferred vote to Mr Thomas' 44 per cent, a Liberal staffer told AAP.
Despite losing Miranda, the government still holds a comfortable majority with 69 of the 93 seats in the lower house.Labor now has 21 seats, with two independents and a Greens MP on the crossbenches.