A hospital engineer has been stood down and the company that installed the system that delivered the wrong gas to two newborn babies at a Sydney hospital will have its contracts suspended as part of the NSW government response to the tragedy.

A baby boy died and a baby girl has been left with serious brain damage after nitrous oxide - commonly known as "happy gas" - was incorrectly connected to the oxygen outlet in one of the operating theatres at Bankstown-Lidcombe Hospital.

A total of 36 babies were born in the operating theatre with affected gas outlets, a report by the Chief Health Officer found. Only two babies were treated in the resuscitation unit, where the gas was delivered.

NSW Health Minister Jillian Skinner faced the media on Tuesday to deliver the interim findings of an investigation into the fatal error, expressing her "profound sorrow and sympathy".