Todd Carney will launch legal action against former NRL club Cronulla over claims he was wrongfully dismissed.

Carney's lawyers are preparing to serve papers on the Sharks for his sacking following the distribution of a lewd photograph last year on social media.

The former Dally M winner had his contract terminated after a photo purporting to show him urinating in his own mouth - an act known as "the bubbler" - emerged online.

Carney has picked up the pieces of his career with French side Catalans and, on Tuesday night, signed a three-year contract extension with the Super League club.

He was sacked by Cronulla in June last year, the day after the photo of him at Cronulla pub Northies emerged.

In April, he won a wrongful dismissal claim against the Sharks before the NRL Appeals Committee after he argued they failed to observe due process and denied him a chance to plead his case before the club board.

Carney's lawyers are arguing that under the collective bargaining agreement, players who are alleged to have committed a disciplinary offence must be issued with a breach notice and summoned to appear before the board.

In April, he opened negotiations with the Sharks for compensation but the parties did not come to an agreement.

The troubled playmaker was previously sacked by Canberra and the Sydney Roosters for off-field issues.

In 2008, he was let go by the Raiders after a nightclub incident in which he was accused of urinating on another patron while, in 2011, he was let go by the Roosters - the year after he guided them to the NRL premiership - for breaking an alcohol ban.

Carney's re-signing with Catalans ended speculation about his future after he had been linked this year with a return to the NRL.

Catalans said on their Twitter account on Tuesday night that Carney announced at the club's end-of-season awards dinner that he had signed a new three-year deal to stay in Perpignan.

"Todd Carney has just announced at the awards night that he has signed a new three year deal with the Catalans Dragons," read the tweet.

Carney will be joined by Glenn Stewart and Dave Taylor in 2016 after the pair on agreed deals to sign earlier this year.

AAP