Newcastle councillor John Church says a proposed ban on developers and real estate agents contesting local government elections would be "discriminatory".
NSW Labor was due to introduce a bill in the Legislative Council on Tuesday or Wednesday which would make it illegal for developers and property agents to run in this year's council election.
Mr Church, a member of the minority Newcastle Independents alliance on the council, is a licensed real estate agent.
"Any banning of candidates based on a person's job or profession is, in my view, discriminatory," he said on Tuesday.
Mr Church and fellow independent Kath Elliott are among the possible rivals to Labor's Nuatali Nelmes for the lord mayor's job in September.
Mr Church, a former NBN newsreader, contested the 2013 federal election for the Liberals but quit the party to run successfully as an independent at the 2017 Newcastle council election.
The Sydney Morning Herald reported on Tuesday that the Liberals' state executive last month voted down a proposal to ban developers from pre-selection, but the issue split the party on factional lines.
Liberal headquarters is, as one source confirmed to the Newcastle Herald, "paranoid" about developer councillors staining the party brand.
The Liberals gagged young Hunter candidates from talking to the media during last year's state election given they had no chance of winning Labor-held seats and could only derail the broader campaign.
Developers pose a greater risk to the party's image because they can potentially win seats on councils.
This was illustrated graphically during the Independent Commission Against Corruption investigation into illegal developer contributions to the Liberals' 2011 state election campaign.
Liberal Newcastle MP Tim Owen and Charlestown MP Andrew Cornwell resigned from Parliament in 2014 after admitting that Newcastle's independent property developer lord mayor at the time, Jeff McCloy, had given them money.
Shadow Treasurer Walt Secord said on Tuesday that communities "expect the highest level of accountability and integrity from their councillors and mayors".
NSW Parliament rejected a similar Opposition bill in 2017, but Labor is revisiting the issue to exploit Liberal divisions.
The Newcastle Herald understands a developer ban is still a live issue in Liberal ranks, but only in terms of internal party endorsements and not legislative changes.
A spokesperson for Local Government Minister Shelley Hancock said the government had no plans to amend the Local Government Act.
