Luke Foley quits as NSW Labor leader

Luke Foley has resigned as NSW Labor leader after an ABC journalist accused him of putting his hand down her underpants at a Christmas party in 2016.

Mr Foley says the accusations are false but announced on Thursday he will step down while he considers legal action.

"I've retained solicitors and senior counsel to advise on the immediate commencement of defamation proceedings in the Federal Court of Australia," he said in a brief statement to media.

"However I can't fight to clear my name and fight an election at the same time - it's just not possible to do both.

"Therefore, I'm resigning the leadership of the Labor Party effective today."

Mr Foley said he will stay on as the member for Auburn and return to the backbench.

The announcement came several hours after ABC reporter Ashleigh Raper detailed allegations against the former opposition leader, claiming he put his hand through the back of her dress and inside her underpants.

Ms Raper wanted to "set the record straight" about the incident at a bar in Sydney's CBD after it was raised in parliament by Liberal minister David Elliott.

Deputy leader Michael Daley appears to be the frontrunner to replace Mr Foley.