NSW Labor leader Jodi McKay has admitted the party is in a "terrible state" after an anti-corruption inquiry was told a senior official knew about a potentially illegal donation made to the party.
The opposition leader said suspended general secretary Kaila Murnain's career with the party is over and described NSW Labor as being in a "terrible state" following this week's Independent Commission Against Corruption hearings.
Former senator Sam Dastyari also called for the state branch to seriously look at a "proper, full statewide ban on private donations" following his testimony before ICAC.
The ICAC inquiry is examining whether Chinese billionaire Huang Xiangmo, who is now banned from Australia, was the true source of $100,000 said to be donated by 12 people from a 2015 Chinese Friends of Labor dinner.
The inquiry heard that Ms Murnain was told by upper house MP Ernest Wong in September 2016 that Mr Huang - a prohibited donor - had donated to the party.
She said she couldn't remember the donation amount but connected it to the money raised at the 2015 CFL dinner at the centre of the ICAC inquiry.
As a property developer, Mr Huang was prohibited by law from making donations to NSW political parties.
NSW Labor's Kaila Murnain is giving evidence at the Independent Commission against Corruption. Source: AAP
An emotional Ms Murnain, who took the top job in 2016, on Thursday said she was scared for the ALP after being told of the potential illegal donation.
She had earlier told the inquiry the party's lawyer Ian Robertson advised her to "forget the conversation happened".
When counsel assisting asked on Thursday why she only told ICAC about her conversation with Mr Wong during a compulsory examination, she replied: "I wanted to do the right thing".
Ms Murnain will remain suspended on full pay until the end of the six-week ICAC inquiry, after which a successor will be appointed.
Mr Wong is expected to give evidence to the Sydney inquiry on Friday.
