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UPDATE: NSW Premier Mike Baird has accepted Mike Gallacher's resignation as Police Minister following allegations made at the Independent Commission Against Corruption.
"I make no judgement regarding those allegations," Mr Baird said.
"However, it could take considerable time for them to be resolved, and this would constitute an unacceptable distraction for my government."
"We need to be completely focussed on delivering results for the community."
Mike Gallacher released a statement about 4pm expressing respect for emergency services and his honour at serving as Minister for Police and Emergency Services.
"Whilst allegations of corruption have been made, I have made the decision that I should not remain in this office whilst such a serious allegation has been made against me," Mr Gallacher said.
"I note the allegation was made for the first time today."
"I have spent my entire professional life fighting corruption and crime...I have been summoned to give evidence before the Comission and I am waiting my turn to be called."
By MICHAELA WHITBOURN and KATE McCLYMONT
NSW Police Minister Mike Gallacher has been drawn into a cash for favours scandal after a corruption inquiry heard he hatched a "corrupt scheme" with Nathan Tinkler's property development group to receive illegal donations.
In a development that will send shockwaves through the Baird government, the Independent Commission Against Corruption heard on Friday that Mr Gallacher was intimately involved in setting up a scheme for Buildev to pay tens of thousands of dollars in illegal donations to a Liberal Party slush fund.
The inquiry was shown June 2010 emails in which Buildev executives Darren Williams and David Sharpe discussed which company should be used to funnel the illegal donations into the slush fund, a "sham business" called Eightbyfive set up by a staffer to former Liberal minister Chris Hartcher.
"Which entity will I give Mike Gallacher?" Mr Williams asked Mr Sharpe.
Mr Sharpe replied: "Ask Nathan as I think it's best to come through Patinack [Farm, Mr Tinkler's horse racing business] get right away from property minning [sic] infrastructure."
Property developers have been banned from making political donations since December 2009.
The inquiry heard that Mr Tinkler's Buildev had plans for a coal loader at the old BHP site at Mayfield in Newcastle.
Mr Williams admitted that he had a close relationship with Mr Gallacher and that Mr Hartcher would be useful to Buildev's plans because "he was in government".
Counsel assisting the inquiry, Geoffrey Watson, SC, accused Buildev's Mr Williams of lying during a tense morning in the ICAC witness box.
"You know you can go to jail for giving false evidence, " threatened Mr Watson.
When Mr Williams said he "honestly couldn't recall" the contents of an email about the Eightbyfive scheme, Mr Watson suggested that the ICAC had information which might help him.
He then sensationally put to Mr Williams: "The truth is you had a corrupt and long standing connection to Mike Gallacher, through him you hatched a corrupt plan".
