Dozens of New South Wales councils will be forced to merge to create larger municipalities and significantly reduce the number of local governments.

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The forced amalgamations will cut the number of councils from 152 to 112.

In Sydney, 43 councils will be reduced to 25, while 109 regional councils will become 87.

Premier Mike Baird said the reforms were an important part of "how we make New South Wales sustainable", but conceded they would not be easy.

He said the target population size for the proposed merged Sydney councils was 150,000.

"We have certainly ensured that there is an approach that says it's not one size fits all," Mr Baird said.

"There are nuances that we need to understand — community characteristics, amenity, individual council and stakeholders' views."

It follows an Independent Pricing and Regulatory Tribunal (IPART) review that found nearly two-thirds of the state's councils were not "fit for the future".

Many councils oppose forced amalgamations, but some responded to the IPART review with their own merger proposals.

Earlier, Local Government Minister Paul Toole confirmed the Government was preparing to begin consultation on "major reforms" to the local government sector, including an increase in mayors' terms from one year to at least two.

"Local government reform is not just about proposed mergers," he said in a statement.

"It's about making wider changes to the system to strengthen and improve the ability of councils to deliver the services and infrastructure the community deserves."

Local government elections scheduled for September next year will be delayed, probably until March 2017.

The Opposition's local government spokesman, Peter Primrose, said many ratepayers would be angered.

"The backlash will take place when people realise that this isn't really improving the types of services that are delivered to them," he said.

"And you've still got federal and state governments cost-shifting services onto local councils, and ratepayers are going to have to pick up the tab."

The IPART report, released in October, found local government mergers could save ratepayers almost $2 billion over the next 20 years.

It said those savings could be used to reduce rates or provide better services.

It is understood the amalgamation process will be conducted through the Local Government Boundaries Commission.

The commission's consultation process and public hearings are likely to take months.

The proposed council amalgamations in regional NSW. ( Supplied: NSW Government )

'It's all just a bit of a mess'

Some councillors have expressed anger at the proposals, and the timing of the announcement.

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Warringah Mayor Michael Regan said he felt "dismayed" and "betrayed" by reports that his council would be split into two parts to be merged with Pittwater and Manly councils.

"No-one on the northern beaches supported a split Warringah model," he said.

"It's all just a bit of a mess really."

Woollahra Mayor Toni Zeltzer said her council would fight a forced merger with Randwick and Waverley, in Sydney's eastern suburbs.

"I don't think people in Woollahra are going to roll over," she said.

"If we are forced, that just reinforces the view that democracy is dead in New South Wales."

The plan also includes a forced amalgamation of North Sydney and Willoughby councils, and a merger of Ryde, Hunters Hill and Lane Cove.

Gloucester and Dungog are among the councils that would be forced to merge in regional NSW, along with Dubbo and Wellington.

On the state's south coast, Wollongong and Shellharbour councils are likely to merge.

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Wollongong Mayor Gordon Bradbery said that would make Wollongong ratepayers responsible for a controversial $50 million council administration centre being built at Shellharbour.

"That is exactly the sort of mess that can happen when you have these sorts of mergers," Cr Bradbery said.

Shellharbour Mayor Marianne Saliba said the merger would mean massive job losses.

Coalition MP Andrew Gee said the amalgamation of Orange, Blayney and Cabonne councils was flawed and individual MPs were not consulted before the decision.

"The whole process has been riddled with embarrassing inconsistencies from the very beginning," he said.

"There were inconsistencies about who was declared fit and who wasn't and now there are inconsistencies about who is being referred to the Boundaries Commission and who isn't."

Ashfield councillor Morris Mansour said the Government was making the announcement just before the holiday season to avoid proper scrutiny.

"Our council, for example, had its last meeting last Tuesday and we will not be meeting until the first week of February, and a lot of people would have been organising holidays and everything," he said.

"It's just very deliberate to avoid the proper reaction, proper scrutiny from the residents, from the elected member and that's just not right at all."

But the move has been welcomed by the Sydney Business Chamber, which said fewer councils would make it more straightforward to do business.

"It's very difficult for businesses that work across multiple council areas because so many councils have decided to stick with their own standards, particularly around some of the areas of planning and development, rather than think sensibly and work with neighbouring councils," chamber executive director Patricia Forsyth said.

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City of Sydney council will not be affected, which Lord Mayor Clover Moore said was "welcome news".

Former Victorian premier Jeff Kennett, who implemented a program of forced council amalgamations in Victoria 20 years ago, said it was "long overdue" in NSW.

"The only losers of this in the short term will be some of those councillors and senior officers who are more interested in self interest than they are serving their ratepayers," Mr Kennett told ABC NewsRadio.

The proposed council amalgamations in outer Sydney. ( Supplied: NSW Government )

Rates system to be reviewed

Mr Toole said the IPART would examine the existing system for charging rates.

About 600 people protested against council amalgamations in Sydney last month. ( ABC News: Lucy McNally )

"Councils need to be financially sustainable, but rates need to be fair," Mr Toole said.

"The NSW Government has asked IPART to consider potential improvements to the rating system, including how it works for apartments and other multi-unit dwellings."

He said rates that had already been approved in areas proposed for amalgamation would stand for the next four years.

The Minister would also be given the power to appoint financial controllers to councils deemed to be at financial risk under the proposals to be considered.

Mr Toole said "special measures" would be proposed for rural councils, including a voluntary system to reduce councillors, meetings and wards.

He is also proposing all councils be comprised of odd numbers of councillors to prevent voting deadlocks.

Other proposals to be considered include external audits of councils under the auspices of the Auditor-General, and a new code of conduct to incorporate ethical standards.