State Labor leader Jodi McKay says the ALP is suspending the membership of MP and former Rockdale mayor Shaoquett Moselmane following raids on his home and office by Australian Federal Police.
Ms McKay said reports Mr Moselmane's office had allegedly been infiltrated by Chinese government agents were "dreadfully concerning, it's terrible".
Suspending Mr Moselmane's membership of the ALP was "the right thing to do", she said.
"He will no longer sit in the Caucus, he will longer be a Labor Party member."
Australian Federal Police (AFP) have raided the home and office of NSW upper house MP and former Rockdale mayor Shaoquett Moselmane.
The Sydney Morning Herald reported the AFP and federal Attorney-General are investigating connections the Labor MP has with outside influences.
The Herald said Chinese government agents were alleged to have infiltrated Mr Moselmane's office in order to influence Australian politics.
Photos posted online showed Mr Moselmane leaving his home in Lennox Street, Rockdale on Friday morning "during a raid by federal agents". A man with him was identified as his lawyer.
An AFP spokeswoman said, "The AFP can confirm it is executing search warrants in Sydney this morning as part of an ongoing investigation.
"There is no current or impending threat to community safety.
"As this investigation remains ongoing, there will be no further comment."
Mr Moselmane has previously been strongly criticised for his strong support of the Chinese government.
In April this year, Mr Moselmane stepped down as assistant president of the NSW Legislative Council over contentious pro-Chinese government comments he made regarding the COVID-19 outbreak.
Mr Moselmane was elected to the NSW Legislative Council in December 2009 and was its first Muslim member.
He had served on Rockdale City Council from 1995 and was mayor on four separate occasions from 2001 to 2002-3, 2005-2006 and again in 2009.
Mr Moselmane had the branch numbers to win Labor preselection for the State seat of Rockdale, but the party's Head Office "parachuted" former Sydney Lord Mayor Frank Sartor into the seat.
It is believed Mr Moselmane was placated with the upper house position.