NSW Liberal MPs Andrew Cornwell and Tim Owen have stood down from the party following revelations at the corruption watchdog on Wednesday.
Mr Cornwell will also relinquish the position of government whip.
"I make no judgment regarding the outcome of Operation Spicer," said NSW Premier Mike Baird in a statement.
"However, it will take time for the allegations to be resolved, and I am not prepared to allow this to become a distraction for the party or the government.
Earlier, the Independent Commission Against Corruption (ICAC) heard Dr Cornwell was offered $10,000 in a brown paper bag by Newcastle mayor Jeff McCloy before the 2011 state election.
The MP told the commission he was offered the cash by Mr McCloy while sitting in the mayor's Bentley.
The bag was described as either a brown paper bag or brown envelope full of $100 bills.
Counsel assisting Geoffrey Watson said Dr Cornwell passed the money to a Liberal party colleague and the money was fed through a company called Harmony Hill and eventually funnelled back to the NSW Liberal Party.
"It would seem to us these actions were the result of inexperience," Mr Watson said of Dr Cornwell.
"There is no evidence that Mr Cornwell gave any preference to Mr McCloy."
Mr Owen, who is a former top-ranking RAAF officer, announced in May he wouldn't be recontesting his seat in the 2015 election after being named by the ICAC.
While he claimed he had "no knowledge" of any funding irregularities in his 2011 election campaign, he conceded it was "highly likely" that prohibited donors contributed to his campaign.
Dr Cornwell's office has been contacted for comment.
Mr McCloy declined to comment on the allegations levelled against him.
"I must wait until I have my turn in the box," he told AAP.
"You'll hear my evidence in a few days."
City of Newcastle Greens Councillor Michael Osborne said Mr McCloy should stand aside as mayor during the ICAC's investigations.
"He should really do the right thing and stand aside so that Newcastle council doesn't get tainted by this air of corruption," he said.
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