New laws will allow the state government to suspend local councils for up to three months and order them to improve their performance, instead of waiting until they need to be sacked.
NSW Local Government Minister Don Page said he would introduce new laws allowing earlier intervention.
Existing laws only allow for the sacking of councils after a long period of dysfunction, expensive public inquiries and intervention by the minister and the governor.
“In the past the only measure available was sacking councils after a public inquiry, which generally only happened after a long period – usually years," Mr Page said on Wednesday.
“This resulted in long delays during which the community was disadvantaged, and business including DAs were delayed and services suffered.
“These new laws will act as a powerful deterrent against council misbehaviour and will enable a more appropriate response to problems that arise."
Councils to have been sacked in recent years for alleged misconduct include Wollongong and Shellharbour.
Councillors at Ryde council voted six to five at a meeting in July to terminate the general manager's contract after major ructions and complaints to the Independent Commission Against Corruption.
Mr Page said it was clear from the level of dysfunction demonstrated in several councils in recent years that the government had insufficient power to manage such problems.
“This is resulting in unnecessary cost to both councils and the state, poor service delivery for affected local communities, with effective operation of council business often severely disrupted," he said.
“While most councils get on with the job of delivering services in an efficient and timely manner, there have been some extreme examples in recent memory of councils behaving very badly indeed.
“It is my fervent hope that I never have to use these new powers. For the first time in 17 years not a single council in NSW is under administration. We want to keep it that way."
Under the news laws the minister or director general will have stronger powers to gather information from councils to identify dysfunction, new powers to issue an "order to improve" and new powers to suspend a council for up to three months.
“These powers will complement our new laws governing councillor conduct and tougher penalties for councillors who misbehave," Mr Page said.