NSW Premier Chris Minns says allegations a senior planning official used inside information to profit from changes to zoning rules are distressing.
The state's corruption watchdog will investigate claims the planning department bureaucrat used the information to buy a home in an area of Sydney's north shore slated for re-zoning.
Mr Minns urged anyone with information to help the investigation.
"The NSW government takes allegations of corruption extremely seriously, particularly in the planning department," the premier told media while visiting Southern Cross University on Friday.
"Anybody that has information about these very distressing and certainly, certainly important allegations should provide it to the ICAC as soon as possible."
Shadow attorney-general Alister Henskens used parliamentary privilege to accuse the official of acting before details of the Minns government's housing plan were publicly known.
The bureaucrat is further accused of setting up a "property syndicate" with neighbours in order to sell their homes to developers for a profit.
— Alister Henskens (@AlisterHenskens) February 8, 2024
Mr Minns said he and his colleagues had no prior knowledge of the claims.
NSW Greens MP Sue Higginson said the government was being secretive about its plans to increase housing.
She called on Mr Minns and Planning Minister Paul Scully to improve consultation.
"The planning system is a haven for opportunity and it's where corruption happens. They have to wake up, correct the course, and re-engage with genuine consultation programs from communities to councils and beyond."
Weeks before Christmas, the state Labor government announced a major planning overhaul that included snap rezoning around 40 existing or planned transport hubs to allow up to 210,000 new dwellings.
Mr Henskens told NSW parliament on Thursday there was credible evidence the official passed confidential information on to other residents in an attempt to form a property syndicate.
The Liberal MP, who represents the seat of Wahroonga in Sydney's north, claimed he was given the information by an informant who was prepared to "fully cooperate" in any future investigation.
"Shortly after living in the neighbourhood, the planning official ... communicated with neighbours about banding together to sell their properties to a developer, promising a significant uplift on its current value because of the government's likely housing policies," Mr Henskens said.
Parts of the transport-oriented housing plan are due to be introduced by November, although the state government has said some rezonings could be completed earlier.
The changes have drawn a fierce backlash from many councils, which argue the plan has involved little consultation and unreasonably overrides heritage and other housing controls.
Three stations in areas neighbouring Mr Henskens' north shore seat have been targeted for increased development under the plan.
Mr Henskens questioned how the blanket zoning changes could go ahead without a full inquiry following the corruption allegations.
"What is particularly concerning is that the public official in question was not only lacking in ethics but has sought to draw that person's neighbours into their web of corruption and become part of a criminal conspiracy to trade on inside information," he told parliament.
Planning Minister Paul Scully said he would refer the official to the Independent Commission Against Corruption and co-operate with any investigation.
"There is absolutely no place for the kind of actions being alleged by the member for Wahroonga," he said in a statement on Friday.
"We urge the member to make a similar referral and provide ICAC with whatever information he has to allow for a comprehensive investigation."