Luke Foley has resigned as New South Wales Labor leader, telling a news conference he could not contest the upcoming election while fighting "false" claims made by an ABC reporter, who says he put his hand inside her underpants at a Christmas party.

Key points: ABC journalist Ashleigh Raper said she did not want to make the statement

ABC journalist Ashleigh Raper said she did not want to make the statement Foley subsequently resigned, but said he intended to "clear his name"

Foley subsequently resigned, but said he intended to "clear his name" ABC understands Labor MPs backing Michael Daley to replace him

Mr Foley said he had retained solicitors to commence defamation proceedings after an ABC journalist released a statement detailing how he put his hand down her dress at a Christmas party in 2016.

"The first thing I'd like to say is that the allegations against me today, made public by the ABC, are false," Mr Foley said.

"I've retained solicitors and senior counsel to advise on the immediate commencement of defamation proceedings in the Federal Court of Australia."

Mr Foley said he would remain as the member for Auburn and move to the backbench.

"I can't fight to clear my name and fight an election at the same time. It's just not possible to do both," Mr Foley said.

Ashleigh Raper is an experienced journalist working in the ABC's Sydney newsroom. ( ABC News )

"This will enable a new leader to give his or her full attention to the task of defeating the Liberal National Government."

Mr Foley did not take questions during his brief media conference.

ABC news director Gaven Morris backed Ms Raper.

"Ashleigh Raper is a strong and honest person," he posted on Twitter.

"The ABC stands by this statement."

The ABC understands MPs are mobilising behind Michael Daley to become the next leader of the Labor Party and that he would overwhelmingly have the numbers for the top job.

Discussions for his deputy are now centring on the Left's Penny Sharpe, but other names previously mentioned are Jo Haylen and Yasmin Catley.

Michael Daley (L) and Luke Foley. Mr Daley has emerged as the next likely Labor leader. ( AAP: Joel Carrett )

'I completely froze'

Ms Raper released a statement earlier today, detailing Mr Foley's behaviour towards her at a Christmas function in 2016.

"He stood next to me," she said.

"He put his hand through a gap in the back of my dress and inside my underpants.

"He rested his hand on my buttocks.

"I completely froze."

Ms Raper said the incident was witnessed by Sean Nicholls, who was then the state political editor at the Sydney Morning Herald and is now an ABC journalist.

"As shaken as I was, I decided not to take any action and asked Sean to keep the events in the strictest confidence," she said.

"He has honoured that."

Ms Raper said in the statement that she felt compelled to speak out due to the "escalation of the public debate, including in state and federal parliament, despite my expressed wish to neither comment nor complain".

She also decided to speak out after Mr Foley called her to apologise, telling her "I'm not a philanderer, I'm not a groper, I'm just a drunk idiot".

A NSW Police spokeswoman said there had been no complaint received about the matter.

"NSW Police have however spoken to senior management at the ABC," the spokeswoman said in a statement.

"If a complaint is received, the matter will be taken seriously and will be thoroughly investigated by detectives as would any allegation of this nature."

'Appropriate' for Mr Foley to resign

MPs from all sides were shocked by Ms Raper's statement.

Labor's Blue Mountains MP Trish Doyle said she felt "quite horrified" while reading it and could "hear the distress in the journalist's voice".

"What spoke to me really clearly was that women in all walks of life often experience something horrendous — unwanted sexual attention, sexual abuse, domestic violence — and are too afraid to speak up because they're often not believed," she said.

Liberal MP David Elliott raised the incident in Parliament last month. ( ABC News )

"I think the situation with Luke is really sad.

"I'm pleased he did what is good for the party and resigned."

Ms Doyle described the fact that it was first raised by Liberal MP David Elliot under parliamentary privilege as "skullduggery and political point-scoring".

"I think that's appalling behaviour, especially because [Mr Elliot] knew, in doing so, it would cause a number of people distress," she said.

Labor MP Jenny Aitchison said she felt "very deeply saddened by the situation Ashleigh Raper has been placed in".

"She is incredibly brave and I thank her for coming forward to tell her story in what have been extremely difficult circumstances," she said.

"I am shocked and appalled by the allegations.

"It is entirely appropriate for Luke Foley to resign from his position as Leader of the Opposition under the circumstances."

Mr Foley has denied any wrongdoing since the matter was first raised in Parliament last month by Liberal MP David Elliot.

"Mr Elliot should come out of the coward's castle, walk 10 metres outside and, you know, if he said that again, I'd sue him," he said at the time.

"Of course it's not appropriate to misuse parliamentary privilege to smear people without a skerrick of evidence."