Blue Mountains City Council is facing suspension for the second time in less than three months following claims its independent investigation into asbestos management was clouded by a conflict of interest.
NSW Local Government Minister Gabrielle Upton on Thursday issued a notice of intention to suspend the council for three months and appoint an interim administrator after the government discovered there was a "serious conflict of interest" in the council's independent investigation.
The council started the investigation in late 2017 following the discovery of asbestos in several council-owned workplaces including a pre-school.
However, it was revealed one of the investigators had links to a senior council staff member, Ms Upton said.
"It seems that the relationship between the independent investigator and the senior staff member was not just professional, they were friends," the minister said in a statement.
"This relationship would be a serious conflict of interest and brings into question the council's governance and due diligence practices."
The council was slapped with a notice of intention of suspension in December following serious allegations relating to its asbestos management practices.
Mayor Mark Greenhill at the time said it was a political decision. He pointed to the Labor-dominated council's history of holding the government to account when it has failed the community.
Mr Greenhill on Thursday said the latest notice was part of an ongoing campaign.
"I am at a loss to understand how it is that the actions of an independent solicitor, not engaged directly by the council, can lead to the suspension of democracy in the Blue Mountains," he said in a statement.
"The council has complied with everything asked of it by SafeWork NSW. I don't believe this is justified."
Local Greens councillor Kerry Brown said the council had a "we have done nothing wrong attitude" despite having very poor processes.
"Blue Mountains Greens councillors are committed to keeping council in local hands and, if the council is suspended, we will be working with our colleagues in state parliament to get us back up and running as soon as possible," Cr Brown said.
The council was given seven days to respond to the notice before Ms Upton makes a final decision.