The Member for Wollongong was dumped as parliamentary secretary for health - a position worth an extra $25,000 a year - and was kicked off an internal ALP committee where she represented former premier Morris Iemma.

Mr Rees made the decision a day after accusations that Kiama MP Matt Brown straddled the breasts of Ms Hay in front of her daughter, Alison Dumbrell, during budget night celebrations in Sydney. Ms Hay and Mr Brown have both denied the accusations.

But the allegations surrounding the boozy budget night party may have proved the last straw for the new Premier, who rang the beleaguered MP yesterday to deliver the bad news.

The decision may sound the death knell for Ms Hay's political career with local ALP members actively searching for a replacement to run against Ms Hay before the next state election.

"There are people in the Labor Party that are actively looking for other candidates to run in a preselection in Wollongong," one source said.

Another source believes Ms Hay's preselection challenger is likely to be a female in order to retain the female quota in Parliament.

Ms Hay spent 16 months in the parliamentary secretary position, serving under Mr Iemma, who stood by the MP during a tumultuous 12 months.

She also represented Mr Iemma on the ALP's administrative committee.

Mr Rees gave no specific reason for his decision to dump Ms Hay, saying that he "wanted a fresh face".

"This decision is about ensuring the right people are placed in the right positions; it is about renewing the government," he said.

Ms Hay did not return the Mercury's calls yesterday.

Mr Rees' decision represents the second Illawarra political scalp since it was revealed Mr Brown stripped down to his underwear and partied with his parliamentary colleagues in June.