NSW Labor deputy Penny Sharpe will take the role of interim leader until a leadership ballot can take place following the federal election.
NSW Labor leader Michael Daley has stepped down from the top job shortly after the Coalition secured a majority government in NSW by winning a 47th seat in the 93-seat lower house.
On Monday afternoon, Mr Daley said he would be standing aside as NSW opposition leader until the federal election is concluded but vowed to re-contest the leadership.
On Saturday night, as he announced that he had conceded defeat to NSW Premier Gladys Berejiklian, Mr Daley had said he intended to remain leader of the NSW Labor party.
"I couldn't have worked harder ... most leaders get four years to establish themselves, I had four months," Mr Daley said on Monday.
"I'm not going to shoulder all responsibility for what happened on Saturday night."
The former Labor leader said he "was not a racist" in response to a question over whether his controversial statements about Asian immigrants affected Labor's chances in the recent election.
"Our young children will flee and who are they being replaced with? They are being replaced by young people from typically Asia with PhDs," the then-deputy Labor leader told the Politics in the Pub function in September last year.
Deputy leader Penny Sharpe will take the role of interim leader until a leadership ballot can take place. On Monday she confirmed that she would not be nominating herself in the future leadership ballot.
"This is unprecedented, we accept this, it is unchartered waters," Ms Sharpe said.
"We'll see how we go, but I am actually quite confident and calm about how we will deal with this."
Mr Daley said he would recontest the leadership in June but stepped down to avoid distracting from the federal election.
The Coalition was returned to power on Saturday for a third-straight term but it wasn't immediately clear if it had won enough seats to govern in its own right.
That question was answered on Monday when Nationals candidate Dugald Saunders was declared the winner in Dubbo by ABC election analyst Antony Green, following an extremely close count.
Dubbo had previously been held by the retiring former Nationals leader Troy Grant.
Lismore was also called on Monday, this time for Labor, with former federal MP Janelle Saffin taking the seat from the Nationals.
Green also called Lismore as a Labor gain on Monday afternoon with former federal MP Janelle Saffin taking the seat from the Nationals.
When Ms Berejiklian claimed victory on Saturday night, the Coalition had secured 46 seats - 34 for the Liberals and 12 for the Nationals - with just over 50 per cent of votes counted, one short of the number needed to form a majority government.
That's another blow to the junior coalition partner which also lost the western NSW seats of Barwon and Murray to the Shooters, Fishers and Farmers Party and failed to win back Ballina on the north coast from the Greens.
There's just one seat still in doubt, according to Green, with Liberals candidate Wendy Lindsay narrowly ahead of Labor's Cameron Murphy in East Hills in Sydney's southwest, the government's most marginal seat.
Labor picked up just two seats on Saturday in Coogee and now Lismore.
Ms Sharpe said it wasn't yet known who would lead the party in the lower house when parliament resumes before the ballot.
"We'll have to have someone acting in the lower house for question time," the interim leader said.
Ms Sharpe suggested the new full-time leader would be in place by the end of June.
Kogarah MP Chris Minns is touted as a top contender with Labor frontbencher Jodi McKay also a possible challenger.
AAP understands while there's been speculation about Prue Car, she won't nominate.
Mr Minns' chances at the top job could be hurt by comments which upset the unions in his inaugural speech to parliament.
But he has since won back some sections of the union movement, a party insider said.
The bigger barrier could be the historical bad blood with NSW Labor general secretary Kaila Murnain.