"Michael Daley has done the right thing," said a senior party late in Tuesday, saying that Sussex Street ALP's head office is now fully focused on the federal election and desperately that there would be no more brand damage coming out of NSW.
The Leader of the Opposition Bill Shorten did not speak to Mr Daley on Tuesday, but the federal and Labor state figures made it clear to Mr Daley that he should not compete in the vote.
With the decision to postpone state leadership competition until after the federal election, the party has bought its own time to conduct "due diligence" – as one source gives – on likely competitors. replace Mr Daley.
The names that come to the mix so far are the shadow spokesman Chris Minns, shadow transport spokesman Jodi McKay and shadow treasurer Ryan Park, all of the right. None of them have stated openly that they are competing again, although Mr Minns ran against Mr Daley in November after Luke Foley suddenly collapsed, and managed to collect 12 votes against Mr Daley. 33.
Mr Minns is expected to put his hand again, and Ms McKay and Mr Park are thought to be considering their options. Frontbencher Prue Car, a shadow minister of TAFE and Western Sydney, is another whose name is float, although one super-source said yesterday that she had told her colleagues that she wouldn't run.
Mr Minns and NSW general secretary, Kaila Murnain, have had a poor relationship in the past, partly in Mr Minns' friendship legacy with former state party secretary Jamie Clements.
Some senior doctors claim that Ms Murnain has already thrown her emphasis on Ms McKay. But others disagree with this, saying that Ms Murnain's key priority is to see a candidate come forward who will be able to join the caucus and hold the job for the next four years.
"Her head is in the federal game now," said one inside. "She wants to deal with caucus – whoever wants it, can put her hand up, let them get the vote and her to solve."
Changes in rules mean that the next leader will be chosen by a collective vote of grassroots party members and Labor MPs.
Ms McKay told her Herald Tuesday night: "I had given my support to Michael and I didn't expect him to pull it back. As we are in a federal campaign, I'll take some time to consider what I'm doing now Labor leadership. "
Some believe that Ms McKay, who has been an effective advocate for Labor in transport, will find it difficult to access caucus members although she has a relatively strong public profile.
Mr Daley's sudden fall has left his supporters retreating, with one saying yesterday "some of the Liberals also have gaffes, and they're skating over it. We take people out and shoot them t . "
Another senior Labor figure said: "Certainly, there has been some federal public intervention [in Daley standing down] but I think this is more significant in the home. "
The source said it would not be "fair" to say that Mr Daley had lost all the support of the caucus but there was a lot of "shock around the result".
A senior front bench said Mr Daley would not improve from this. "He was told that, he was done."
"That's for him, his political career has come to an end. He'll have to stay around for two years until he can get his parliamentary pension. But that's it for him".
Mr Daley made a series of mistakes during the last week of his campaign, the most damaging of which was a video appearance of him telling pubs in the Blue Mountains last year that "our children flee" because "Asians with PhDs … Moving in and in taking jobs ".
He also performed badly in the leaders' debate against Premier Gladys Berejiklian last week.
Mr Daley said at the weekend that he had wanted to run again because he had only 134 days in the job and that he had "worked as hard as we could" to win the election. A tough hard political reality has now sunk in. Mr Daley said he wanted to remain a member of Maroubra.
He added "he has spoken to the acting leader Penny Sharpe and told her that I will be taking a holiday over the next few weeks to spend time with my family."
Alexandra Smith is the State Political Editor of The Morning Morning Herald.
Deborah Snow is a senior author for The Morning Morning Herald.
Esther Han is the state politics and health correspondent in The Morning Morning Herald