The NSW Opposition wants developers and real estate agents banned from running for local government, after concerns were raised that Auburn deputy mayor and property developer Salim Mehajer was entitled to vote on planning matters from which he could potentially benefit.
Labor leader Luke Foley said the Government needed to "end the farce" to better align the rules with community standards.
"I think the man and woman in the street think it's just illogical that property developers are allowed to be elected to local councils and vote on matters that can benefit them commercially," he said.
Labor has banned developers running as candidates for the party and Mr Foley wants the Government to match the policy by changing the law.
"You do have to question whether all developers on local councils are there out of the goodness of their hearts, or whether it's perhaps occurred to some of them there might be a benefit to them commercially," he said.
Last week, several Auburn councillors raised concerns about Mr Mehajer, who was also criticised for staging a lavish wedding complete with helicopters and fighter jet flyover that resulted in a street being closed down.
Mr Foley, the member for Auburn, said he would not be passing judgment on Mr Mehajar's personal affairs.
"If a bloke wants to lair it up at his wedding, who am I to argue?" he said.
Local Government Minister Paul Toole was unavailable for comment but in a statement he said the situation in Auburn "underscores the need for comprehensive reform of local government in NSW".
"We are undertaking an overhaul of the Local Government Act, including misconduct and pecuniary interests provisions," Mr Toole said.
In 2012 the Government amended the Act, enabling councillors to vote on planning proposals even when they have a pecuniary interest.
They are still not allowed to vote on development applications if there is a conflict of interest, but they can vote on local environment plans enabling them to change the heights of unit blocks.
Premier Mike Baird said last week the issue would be considered as part of the review.