Five inner west councils have joined ranks in the face of the state government's bid to reduce the number of NSW councils, including an agreement to fight any move to force them to amalgamate.

The memorandum of understanding between Canada Bay, Ashfield, Burwood, Leichhardt and Marrickville councils comes before a meeting of seven northern Sydney councils to consider whether they can also take a joint approach to a policy that is deeply unpopular among many in the local government sector.

Leichhardt Council is beginning to consider a small amalgamation to avoid a megacouncil. Credit:Nick Moir

The state government has given councils until the end of June to present their preferred merger options, or to justify why they are sustainable without doing so.

This Fit for the Future package includes more than $250 million in incentives to councils prepared to merge voluntarily, but the government has left open the possibility that it will force them to do so if they decline.