Prime Minister Scott Morrison has delivered an extraordinary spray at dumped Gilmore candidate Grant Schultz, while defending the decision to parachute in Indigenous leader Warren Mundine instead.

Key points: Mr Morrison defended Warren Mundine's connections to the marginal seat

Mr Morrison defended Warren Mundine's connections to the marginal seat Mr Mundine, who does not live in the area, said running for Gilmore was like "coming home"

Mr Mundine, who does not live in the area, said running for Gilmore was like "coming home" The push to install Mr Mundine has earned the ire of some Liberals

The Liberal Party's endorsement of Mr Mundine for the marginal New South Wales seat has angered local members and prompted Mr Schultz to run as an independent.

But Mr Morrison said the real estate agent should have stepped aside when sitting Liberal MP Ann Sudmalis announced she was quitting politics amid a messy preselection battle last year.

At the time, Ms Sudmalis blamed "branch-stacking, undermining and leaks" for her decision to withdraw.

"The division had actually asked Grant Schultz to step aside, allow new nominations to be called and we could have that sort of preselection, he chose not to do that," Mr Morrison said.

"You don't get to bully your way into a seat in the Liberal Party, that's not how it works."

Warren Mundine has a 'battle on his hands'

Mr Schultz told the ABC he was actually the victim of bullying, describing the allegations as "completely baseless".

"It's very sad when the Prime Minister of our country, a leader of 25 million people, uses his position to make false allegations and bully me," he said.

"The Prime Minister really should explain — not to the electorate, but to this country — why he's making these false allegations."

Mr Schultz accused Mr Morrison of treating the Liberal Party's process with "complete contempt".

"The process — it's open, it's accountable, there are no deals done behind closed doors.

"I nominated, I presented and argued my case to 49 selectors and they selected me — the vast majority did."

A number of local Liberal members have quit the party in disgust over the decision to dump Mr Schultz, who warned voters would be angry too.

"As Australians are, they like giving someone a fair go. And in this case I don't think they'll see it as giving someone a fair go," he said.

"And whilst I wish Mr Mundine all the very best, I think he's got quite a battle on his hands."

Mr Mundine told 7.30 he was "one of the few guys" in Australia who could sympathise with Mr Schultz.

"I've had it done to me twice, so I know what it's like, I know the emotion's he's going through and I understand that," he said.

"The issue for me is, OK, how can we now bring the membership back together?

"I've already arranged meetings with the wider membership of the Liberal Party down here to work through these issues and get things going and for me to get out there and beat the drum."

Sorry, this video has expired Warren Mundine on becoming the Liberal candidate for Gilmore

Prime Minister confident Mundine can win

Mr Morrison said Mr Mundine would provide "outstanding service" if he was successful in Gilmore.

"I've always been impressed by Warren's openness, his candour, his passion, and for the things that he believes in. He's been an advocate for working people. He's been an advocate for those who are less advantaged than many other Australians," he said.

"Yes, I believe Warren Mundine will win, I believe we will win."

Mr Mundine said he had already chosen a house in the electorate and that running for Gilmore was like "coming home".

"My grandparents were born here. My great-grandparents were born here. My great-great-grandparents were born here," he said.

"And then my great-great-great-grandparents were also born here at Moruya, Kiama, and here at the Shoalhaven River."

Sorry, this video has expired Mundine says many generations of his family were born in seat of Gilmore.

Mr Morrison said Mr Mundine had an historic connection to the area.

"I mean, it basically goes back longer than the rest of us, who've shown up since settlement, basically," he said.

"This is his ancestral home."

Warren Mundine's political career crosses parties

Mr Mundine is a former national president of the Labor Party and had been courted to succeed Liberal Democrat Senator David Leyonhjelm.

He did not become a Liberal member until earlier this week, but said he believed in what the party stood for.

"For me, the Liberal Party is the home for me because it is about creating jobs," he said.

"Looking at the policies that Bill Shorten is putting out there, is against the working-class man."

Prominent Yuin woman Marlene Longbottom said while it could be good to have an Indigenous representative in Gilmore, what mattered was each candidate's approach to local issues.

"It's really about who's there for the services in the community and who represents the community," she said.

"We have quite a lot of Indigenous voters here in this region, in Gilmore in particular and we have quite a lot of issues in the community that government needs to come and talk to the community about."