Mr Hickey, the member for Cessnock, told a monthly meeting of his local Labor branch yesterday that he would step down to "get his personal life in order".

The General Secretary of the NSW Labor Party, Sam Dastyari, said Mr Hickey would see out the current parliamentary term.

Last month Mr Hickey had said he planned to stand for preselection for the March 2011 poll after admitting that he had lied about the baby girl's paternity to protect his lover, research officer Stephanie Hesford.

Ms Hesford was stood down late last month pending an investigation into whether or not she broke rules of impartiality during her lengthy affair with the former Labor minister.

Mr Hickey has said he has separated from his wife. It is understood he is still in a relationship with Ms Hesford.

Ms Hesford's former partner, David Kuta, believed the now 18-month old girl was his until she was six months of age.

The office of Premier Kristina Keneally was not commenting yesterday but it is understood Ms Keneally is not happy about the decision after publicly backing him through the ordeal and encouraging him to stand again.

Mr Hickey did not return calls to the Newcastle Herald yesterday but was quoted in a media report as saying "Twelve years is a long time in the job. All of the decisions I've made have been for the right reasons."

Sources said Mr Hickey made a short speech at a special meeting of the Cessnock ALP Branch yesterday morning and a resolution was passed to thank him for his contribution to the party.

No obvious replacement is waiting in the wings but Cessnock City councillor James Hawkins was one name being put forward, as was Port Stephens Council employee Clayton Barr.

"I would consider it an absolute honour if I was approached by the members of the party to do that," Mr Hawkins said.

Cessnock has long been considered a safe Labor seat but insiders conceded that was no longer the case.

"No one will be parachuted in because that would be suicide and it will be just a rank and file pre-selection," a party member said.