Tania Mihailuk used parliamentary privilege to link a Labor candidate to corrupt former minister Eddie Obeid and accused party leaders of ignoring the "horrific influence" of property developers.
NSW Labor leader Chris Minns told the Bankstown MP she needed to cut it out.
"I told her that she can't stay in shadow cabinet and continue to launch repeated political attacks," Mr Minns said.
He offered to keep Ms Mihailuk on the frontbench if she handed over information to substantiate her claims and agreed not to launch another friendly fire attack.
Mr Minns followed up with a voicemail on Friday morning after almost a day passed without a response.
The Labor leader then dumped Ms Mihailuk live on radio.
Mr Minns said her sacking could not wait any longer, despite the fact she would not have the chance to use parliamentary privilege again for several weeks.
"We both agreed that two hours was enough for her to take the time to think about whether she agreed," he said.
The Labor candidate named in Ms Mihailuk's late-night speech has asked the Independent Commission Against Corruption to review the "outrageous and unsubstantiated" claims.
Ms Mihailuk is locked in a three-way contest for preselection in two Sydney seats.
The Labor leader would not comment on the preselection battle but party candidates are expected to be locked in next month.
NSW Premier Dominic Perrottet said the Labor frontbencher should not have been booted.
"I don't believe that you should silence and sack a strong woman for speaking out about alleged corruption in the NSW Labor Party," he said.
Mr Minns said his colleague was not sacked for speaking out.
"It was the fact she accused someone of corruption and information hasn't been provided," he said.
The Bankstown MP was the subject of bullying claims last month, which she dismissed as "an internal stitch-up".
Ms Mihailuk's office was contacted for comment.
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