Former leader Michael Daley and Kogarah MP Chris Minns are poised to contest the NSW Labor leadership after Jodi McKay resigned on Friday.
Ms McKay, the former MP for Newcastle, held an emotional media conference at Parliament House on Friday where she announced she was stepping down, urging the party to unify before the 2023 election.
Her announcement came only three days after she vowed to stay on as leader despite Labor's dismal showing in the Upper Hunter by-election.
Her supporters in caucus had spent Friday morning trying to convince her to stay on.
"I want to apologise to those who wished I had stayed, but this is the only way I know that I can unite our party," she said.
"I have spent the last six days reflecting on how to achieve unity.
"There has to be a future where there is no destabilising of the party's leader from within."
Mr Minns, the former shadow transport minister and Ms McKay's main leadership rival, quit the Labor frontbench on Wednesday after a staffer for deputy leader and Swansea MP Yasmin Catley distributed a dirt file on him to the media.
The staffer was sacked the same afternoon.
Shadow treasury spokesman Walt Secord, a Minns supporter, quit shadow cabinet on Tuesday.
Ms McKay said earlier in the week that Mr Minns "just doesn't have" the numbers to challenge her.
But Mr Minns, who has contested the leadership twice before, including against Ms McKay after the 2019 election loss, is now likely to put his name forward to lead the party.
Ms McKay said on Friday that she believed she still had the numbers to win a leadership ballot and no one had asked her to quit.
One Labor source said the dirt file and the by-election defeat had provided the Minns camp with a "springboard" to agitate for change.
The dirt file included the result of the previous leadership ballot between Ms McKay and Mr Minns and mentioned a well publicised 2019 ICAC investigation into political donations to Mr Minns.
The party's caucus and rank-and-file will vote on the leadership if it is contested by both Mr Daley and Mr Minns. The result will not be known for several weeks.
Both men both face hurdles in convincing their colleagues and party members they are right for the job.
Mr Minns faces questions about his role in destabilising Ms McKay.
Mr Daley came under fire five days before leading Labor unsuccessfully to the 2019 election for comments he made a year earlier about "Asians" displacing "our young children" from Sydney.
Cessnock MP Clayton Barr said on Friday that he was "really disappointed" Ms McKay had stood down, saying she had brought a compassionate tone to the opposition and was a strong advocate for the Hunter.
Ms McKay grew up in Gloucester and was Newcastle MP from 2007 to 2011 before moving to Sydney and being elected member for Strathfield in 2015.
"She has brought to the leadership a lot of compassion, empathy, heart and warmth, which I think is absolutely crucial to our Labor movement," he said.
"In Jodi we had a leader who is of us and from us. It's been a long time since the Hunter had the opportunity to have the leader of our party to be one of us.
"I admire her reason for going and her nobility for going, which is to find unity in the party, albeit I'm incredibly disappointed it's come to this."
Port Stephens MP Kate Washington also expressed her disappointment that Ms McKay had stepped down.
Ms McKay fronted the media the day after the by-election last weekend and said she was "devastated" that Labor's message had not cut through with voters.
Labor won only 21.2 per cent of the primary vote in Upper Hunter as the Nationals achieved a 3 per cent swing after preferences.