A building inspector at a Sydney council received free massages and sexual favours from a local bath house in return for not reporting that illegal services were being offered, the state's corruption watchdog has heard.

Willoughby City Council building inspector Edward Karkowski appeared at a hearing of the Independent Commission Against Corruption today, over allegations he had received massages and sexual services at Oriana Bath House in Chatswood since September 2009.

Such services were in breach of development consent given to the bath house by the council in January 2008, which specified it would operate as a beauty and massage centre only, and "that staff would be fully dressed, and that there would be no body-to-body massage or sex offered at the premises", the inquiry was told.

Counsel assisting the inquiry, Kate Williams, said the development consent had been approved by Mr Karkowski, who had received illegal sexual services from the bath house "presumably on the implicit understanding that he will turn a blind eye to the breach of the conditions".

Ms Williams said the inquiry into the alleged misconduct would also hear evidence that Mr Karkowski received generous gifts from individuals seeking building approvals from Willoughby Council.