Angry Liberals are tearing up their party memberships on the New South Wales south coast over the decision to parachute in former Labor president Warren Mundine to run as a local candidate.

Key points: The move to instal Warren Mundine has been blasted as undemocratic by spurned candidate Grant Schultz

The move to instal Warren Mundine has been blasted as undemocratic by spurned candidate Grant Schultz The Liberals won Gilmore by around 1,500 votes in 2016, but one Liberal branch president said Mr Schultz's treatment could cost them the seat

The Liberals won Gilmore by around 1,500 votes in 2016, but one Liberal branch president said Mr Schultz's treatment could cost them the seat The NSW Liberal Party's state executive said the party should be able to decide who the best candidates were

It is understood the high-profile Aboriginal businessman is Prime Minister Scott Morrison's preferred candidate.

But a Liberal candidate had already been preselected for Gilmore. Real estate agent Grant Schultz was picked eight months ago to replace sitting member Ann Sudmalis, who is quitting politics.

The party's state executive has now blocked his candidacy to make way for Mr Mundine.

Mr Schultz declared that undemocratic, and yesterday announced he would run as an independent.

Sorry, this video has expired Grant Schultz says he feels betrayed by the Liberal Party.

President of the local Gerringong branch of the Liberal Party Philip Motby said after voting Liberal for 40 years he was resigning his membership to support Mr Schultz.

"We had an endorsement thing, he got 40 votes to nine and I think that was pretty convincing," Mr Motby said.

"But head office seem to think they know more than we do so they're bringing their man in.

"That's fine, let them come in and man the polling booths and do the running around.

"I've been doing it for 40 years; I won't miss it."

Speaking on the decision to bring Mr Mundine in, Mr Morrison said he was "thrilled" to have him as a candidate.

"He has strong values on the importance of family and working hard, on respecting each other, and has demonstrated a real 'no excuses' policy when it comes to getting things done," he said.

"He is a great example for Indigenous people all around the country and will play a very significant role in influencing our team and the direction we take in the future."

Mr Mundine was the chairman of the Indigenous Advisory Council. ( Supplied: Warren Mundine )

'Absolutely idiotic decision' by PM

President of the Berry branch David Gregory is also quitting, and said the saga was a slap in the face.

"The Prime Minister's made this decision and it really is, in my opinion, an absolutely idiotic decision and I really feel for Grant because he is a genuinely fantastic guy," Mr Gregory said.

"To try and install someone from the north shore in Sydney into a regional seat is just so ill-informed.

"I mean we do have issues in the community that we need to address and someone who is a local can actually address them.

"Someone who's come in from Sydney will take forever to get up to speed and is not going to get the support of the local community anyway."

The Liberals won Gilmore by around 1,500 votes in 2016. Mr Gregory said the party's treatment of Mr Schultz could end in the loss of another seat to an independent.

"Time and time again, like Indi in Victoria, you have a good solid local community member and then the party plays games," he said.

"They think they can outsmart the electorate and they lose to an independent.

"So I think Grant's chances are quite strong."

Move set to hurt Liberals, says Antony Green

Sorry, this video has expired Antony Green weighs in on Gilmore

ABC election analyst Antony Green said the "odd" move to parachute Mr Mundine in would probably end up hurting the Liberals' chances.

"I do not think the Coalition have a better chance today than they did yesterday. They have made the issue a big issue in the local electorate now," he said.

Questioning the logic behind the Liberals' decision, Mr Green said he did not think the move was likely to win the party seats "when they have annoyed all of the locals".

He said: "It doesn't sound like a brilliant idea to me. Perhaps [Mr Mundine] will be good as a campaigner, I don't know.

"Grant Schulz, son of a former Liberal MP at a state and federal level, he had challenged Sudmalis for preselection and had the numbers when she withdrew. Perhaps they didn't think he was strong enough, I'm not sure.

"They will lose a lot of foot soldiers if they have annoyed the local branches."

Mr Green added he thought the chances of the Coalition calling an early election were low in the wake of the move to bring Mr Mundine in.

NSW Liberal Party's state executive defends move

Ken Wyatt wished Mr Mundine well. ( AAP: Simon Dallinger )

But other Liberal sources said the initial reaction from voters had been quite positive.

Some believed it was fair game to dump Mr Schultz, because of the way he had stood against the sitting Ms Sudmalis for nomination.

Former Liberal MP Bob Baldwin also took aim at Mr Schultz in a post on Twitter that referenced his late father, former Liberal MP Alby Shultz.

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Minister for Indigenous Health Ken Wyatt wished Mr Mundine well.

"It's an opportunity for him to put his hand up and come into the Australian Parliament," Mr Wyatt said.

"The more Indigenous people we have within the Parliament who are pre-selected and elected on merit is a great way to demonstrate the capability and capacity of individuals to take that journey into our decision-making legislative authority."

In a statement, the NSW Liberal Party's state executive said the party should be able to decide who the best candidates were.