The Auburn Council decision comes two days after the government announced it was pursuing both the current and previous mayors of Sydney’s Hurstville Council over possible misconduct.
The investigation centres around the council's former mayor and property developer Con Hindi's decision to stand down his general manager Victor Lampe last year.
According to a report tabled in state parliament on Wednesday, Mr Lampe had recommended Mr Hindi be fined and possibly prosecuted over a property he owned at Mortdale where asbestos was found.
The report found the council acted inappropriately when suspending Mr Lampe and recommended he immediately return to work.
It said current mayor Vince Badalati would also be investigated for possible misconduct after it was found that he and councillor Hindi may have misused legal advice to suspend Mr Lampe.
Mr Toole said he had zero tolerance for the councillors' actions.
"The community deserves the highest standard of conduct by councillors as their elected representatives," he said.
"Where serious concerns warrant investigation, we will fully investigate them."
The state's corruption watchdog this week also announced it would launch an investigation into City of Botany Bay Council over allegations council staff defrauded more than $4.2 million and misused power for personal gain.
The ICAC is probing allegations that the council's former chief financial officer Gary Goodman and other council employees falsified invoices to themselves, totalling into the millions of dollars.
It's alleged Mr Goodman also took bribes and inducements in awarding contracts while he was employed at the council.