Labor conceded defeat on Sunday, with Ms McKay and ALP candidate Jeff Drayton calling their Nationals counterparts to congratulate them.

A devastated Ms McKay said the result had left many people within the party shell-shocked.

"We thought that people would hear our message," she said.

"We didn't expect that our vote would go to independents; we didn't expect our vote to be torn away as it was."

Ms McKay admitted Labor needed to do some "really genuine soul-searching" but flagged she would not resign.

She said blaming her leadership would be a cop-out and would not address the fundamental structural issues facing the Labor party.

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"There's no challenge against me. I am the leader and we will work through what we need to do," she said.

Nationals candidate David Layzell had claimed around 30 per cent of the first preferences from more than 41,000 votes counted by Sunday afternoon.

Mr Drayton was next on 21 per cent, with the One Nation and Shooters, Fishers and Farmers Party candidates following on 12 per cent.

It represents a significant swing against the opposition, which got 28.6 per cent of first preferences in the 2019 state election.

NSW Nationals leader John Barilaro said the result was an indictment of Labor, although argued the problem did not lie with Ms McKay's leadership.

"She's just a jockey, the horse is broken," he told Sky News.

Premier Gladys Berejiklian early in the campaign said the coalition would need a miracle to win the seat and avoid being plunged further into minority government.

Though the Nationals have held it for the last 90 years, Upper Hunter has become marginal and governments traditionally do not do well in by-elections.

The race was sparked when Nationals MP Michael Johnsen stepped down over allegations he had solicited sex in parliament and revelations he is under police investigation for sexual assault.

The final vote count will not be known for some days, with postal votes returning as late as Wednesday.

Australian Associated Press