The Independent Commission Against Corruption (ICAC) has recommended Wollongong Council be sacked.
The corruption watchdog has been investigating 14 people in a probe into planning practises at the NSW council, including allegations of sex and bribery for developments.
ICAC Commissioner Jerrold Cripps QC said he had formed the opinion there was "systemic corruption" at the council and that prompt action was required to remedy that.
"I have come to the conclusion that it is appropriate to make this declaration and I do so," he told the inquiry.
Mr Cripps said the recommendation should not be taken as casting suspicion on councillors who were not named as persons of interest in the inquiry.
Councillors Val Zanotto and Frank Gigliotti are persons of interest to the inquiry, while Zeki Esen and deputy mayor Kiril Jonovski were added to that list after being named during the hearings.
Mr Zanotto, who had refused to stand down from the council, took a voluntary leave of absence after Friday's ICAC hearings, the inquiry was told.
Wollongong MP Noreen Hay was stood down from her position as parliamentary secretary for health on Friday, after it emerged she agreed to lobby Wollongong city councillors on behalf of developer Frank Vellar, who is also being scrutinised by the corruption watchdog.
NSW Premier Morris Iemma earlier on Monday pledged immediate action if Mr Cripps found the council should be sacked.
"If he makes the recommendation for them to be sacked, they'll be sacked immediately," he told reporters at Warragamba, west of Sydney.
Soon after the ICAC announcement, Opposition Leader Barry O'Farrell said it was "simply unacceptable" for Wollongong council to continue in its current mode.
"You can't have a Wollongong council operating properly with people sitting on it who have such enormous question marks over them."
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