Criminal charges laid over a gassing incident at a Sydney hospital that left one baby dead and another with serious brain damage, have been dropped.

Key points: The gassing incidents left newborn John Ghanem dead and Amelia Khan with brain injuries

The gassing incidents left newborn John Ghanem dead and Amelia Khan with brain injuries SafeWork NSW decided not to prosecute the hospital because of its good health and safety record

SafeWork NSW decided not to prosecute the hospital because of its good health and safety record However, it said criminal proceedings against four other defendants remain ongoing

SafeWork NSW began legal proceedings against Bankstown-Lidcombe Hospital last year over the 2016 incident where nitrous oxide was confused for oxygen.

Newborn John Ghanem died, while Amelia Khan was left with life-long brain injuries.

In a statement, a SafeWork NSW spokesman said instead of prosecution, the Health District would upgrade the contractor management system, implement a risk information system and create a health and safety literacy program.

The Bankstown-Lidcombe hospital falls within the South Western Sydney Local Health District.

A SafeWork spokesman said it decided not to prosecute the District because of its good health and safety record.

"In doing so, SafeWork NSW determined it is in the public interest to enter an enforceable undertaking with SWSLHD as an alternative to prosecution," he said.

A spokeswoman for the District said the strategies within the agreement will improve the ongoing management of risks.

"The Local Health District is committed to complying with its obligations and to deliver the strategies as outlined in the enforceable undertaking," she said.

The total cost of the upgrades and compliance measures is estimated to be $536,600.

The "catastrophic error" saw the hospital confuse nitrous oxide for oxygen. ( Supplied )

Nitrous oxide is used on adults for pain relief but is poisonous to very young children and babies.

SafeWork NSW said criminal proceedings against four other defendants remain ongoing.

They include gas company BOC, which installed the outlet at the hospital and an independent contractor who installed the gas lines.

A BOC spokesperson said because the matter was still before the courts it would not provide details about the ongoing legal proceedings.

"BOC continues to cooperate fully with all investigations into the tragic incident at Bankstown-Lidcombe Hospital which occurred in 2016," it said.

In 2016, Sonya Ghanem awoke to devasting news her newborn son John had died. ( ABC News )

In 2016, John's mother Sonya Ghanem had woken up after an emergency caesarean section and was told her baby had died.

"They said to me [my] baby … just didn't make it, the heart rate, went down and down," she said.

"I said I want to see him. [I was] just looking at him, shaking. 'My son, wake up,' I would tell him. 'Wake up, wake up. What did they do to you?'

"I came [home] empty-handed. Thinking I'd hold my newborn, but no.

"Shocking, shocking this hospital."

Meanwhile, Benish and Danial Khan who were left devastated when their daughter Amelia was left with irreversible brain damage after the incident.

The parents said at the time their baby girl was experiencing constant seizures and had to be fed through a tube.

A report into the fatal mix-up by NSW Health found the incidents were the result of incorrect installation of gas pipelines, governance failures and flawed testing.

General Manager of Bankstown Hospital Chris Leahy and an engineer involved in commissioning the gas line, were stood down.