A funding cut of more than $800,000 has forced the NSW corruption watchdog to slash the number of investigative units from four to three and axe six full-time investigators.

The decision, detailed in the Independent Commission Against Corruption's annual report, follows a fall in an operating grant from the Department of Premier and Cabinet from $1.34 million in 2015-16 to $529,000 last financial year.

In his 2016-17 report, then acting ICAC Commissioner Reg Blanch writes that as a consequence of the "significant" funding cut the agency has "adapted to meet the challenges in delivering its investigation outcomes."

The challenges included "maintaining the capacity to deliver [ICAC's] current level of performance - both in quality and timeliness - for significant investigations with a 25 per cent decrease in the number of investigative teams".