Holsworthy MP Melanie Gibbons will leave State Parliament and seek Liberal Party preselection for the seat of Hughes to take on Craig Kelly.
Ms Gibbons said, "I love my community - but for some time it has been let down by Craig Kelly. It needs and deserves better representation".
"Looking forward, the seat of Hughes needs someone ethical, who listens and responds to them; someone who can serve them and give them a strong voice within a Liberal Government," she said.
The state seat of Holsworthy and the federal seat of Hughes both extend from the west of Sutherland Shire to the Liverpool area and cover a lot of the same territory.
NSW Labor deputy leader Prue Car blasted the move, saying, "The Premier needs to demand Melanie Gibbons reverse her decision and stay on to support the people of Holsworthy as we emerge from lockdowns, rather than jump ship to look for a new job in Canberra".
"Ms Gibbons is the second MP who has decided to pick their careers over their communities by running for a federal seat, joining Andrew Constance who announced his resignation two weeks ago," Ms Car said.
"In an interview with 7 News, Melanie Gibbons said, 'Federal seats don't come up too often'.
"The midst of a pandemic is not the time for ministers and MPs to cut and run. Some 6000 people lost their jobs at the peak of the current lockdowns in the electorate of Holsworthy.
"A by-election in Holsworthy would cost over $1.2 million of taxpayer's money to run."
Ms Car said Labor was sceptical of the fact both Ms Gibbons and Mr Constance would stay on until they were "required to resign for the Federal Election, whenever that is called".
"The people of Holsworthy deserve a representative who isn't just warming a seat until they choose to resign," she said.
"It would be a bit rich for Melanie Gibbons to wait until the federal election to resign considering there were over 6000 people out of jobs because of the COVID pandemic.
"The focus of every member of Parliament should be on opening up successfully and staying open, getting people back in jobs, kids in schools and the economy going again.
Ms Gibbons' partner Kent Johns, a Sutherland Shire councillor, has twice previously been in a position to win Liberal preselection for Hughes until intervention by Prime Ministers Malcolm Turnbull and Scott Morrison.
Cr Johns intended to try a third time for the upcoming election, but changed course when it was clear he could not win.
Ms Gibbons' decision will mean a fourth byelection for new premier Dominic Perrottet to fight following the resignation of Gladys Berejiklian, who will be joined by Andrew Constance and John Barilaro.
Ms Gibbons told 7 News, "There's no crisis, at all - its just the opportunity for change".
"Federal seats don't come up too often, particularly in the area you know and love and have lived in your whole life, so its my chance to make a difference there."