NSW Premier Mike Baird says Mike Gallacher had no option but to step down from the ministry after allegations he acted corruptly.

Mr Baird described claims made at the Independent Commission Against Corruption (ICAC) against Mr Gallacher as “serious”.

“I have had a discussion with the police minister (and) there was no option other than for him to resign,” the premier told reporters in Canberra.

“Every action required to restore confidence in NSW will be done under my leadership,” he said.

He insisted he would take every action possible to clean up politics in NSW.

Gallacher’s barrister made the shock announcement earlier today after ICAC heard that Gallacher and Darren Williams, a development manager at Nathan Tinkler’s Newcastle property developer, Buildev, worked to devise a scheme to make payments to a fake political consulting agency, Eightbyfive – set up by an associate of the sacked former NSW energy minister, Chris Hartcher.

According to The Guardian Australia, the money was allegedly passed on to the Liberal party in contravention of electoral fundraising laws.

Mr Gallacher says he only heard about the allegations for the first time on Friday morning.

“I don’t know what the allegation is,” he told a press conference in Sydney.

But he said he resigned to ensure the government was not distracted by the claims.

The development will hurt the Baird government, occurring so soon after the resignation of Liberal leader Barry O’Farrell following allegations he did not declare receipt of a bottle of wine given as a gift.

Mr Gallacher is the second cabinet minister and fifth Liberal MP to be sidelined as a result of the current inquiry, dubbed Operation Spicer.

• Click on the owl for a run down of all the NSW ICAC casualties   

Darren Williams, a senior executive at coal mogul Nathan Tinkler’s development firm Buildev, told the ICAC on Friday that he lobbied both men over a lucrative coal terminal in Newcastle.

“It could have been a fortune in the pocket of Mr Tinkler, couldn’t it?” counsel assisting Geoffrey Watson asked.

“Yes,” the witness replied.

But in a sensational morning of evidence, Mr Williams firmly denied putting together a plan with Mr Gallacher, Mr Hartcher and former Hartcher staffer Tim Koelma to funnel banned donations to the Liberal Party via Mr Tinkler’s stud farm Patinack.

The $66,000 in donations then went through Mr Koelma’s slush fund, EightByFive, Mr Watson said.

It is alleged Mr Hartcher helped “work up” the crooked scheme but that Mr Gallacher was central to the plan.

He was the man who introduced Mr Webber, his longtime friend, to Mr Koelma, Mr Watson said.

“It was through him that the two of you hatched a corrupt scheme to make donations to the Liberal Party using the EightByFive business,” Mr Watson said.

“No,” the witness replied.

The stunning new allegations came less than 24 hours after the emergence of a damning 2010 email exchange that implicated Mr Gallacher in the unfolding cash-for-favours scandal.

In one email, Mr Williams asked an associate of Mr Tinkler, David Sharpe, “which entity will I give Mike Gallagher (sic)”.

Mr Sharpe replied: “Ask Nathan as I think it’s best to come through patnack (in reference to Mr Tinkler’s horse stud Patinack) get right away from property minning infristructure (sic).”

Developers have been barred from making political donations in NSW since 2009.

Another email sent by Mr Williams to Patinack Farm director Troy Palmer in November 2010 carried the subject heading: “Mate can you get the payments to Tim the Liberal Party please mate as there 2 months behind (sic)”.

– with AAP