Premier Gladys Berejiklian of NSW has admitted that the Liberal Party has lost the seat of Wagga Wagga for the first time in 60 years.
With more than 85 percent of the vote counted, the independent Joe McGirr is in the strongest position.
"I want the people of Wagga to know that my government will work hard throughout New South Wales, but especially in that region, to regain the confidence that we have clearly lost," he said.
She said the result also indicated the impact of the federal liberal party leadership spill that elevated Scott Morrison to the prime minister.
"This was really about trust in the political system, trust in politicians," he said.
"The overwhelming message I received is that people were sick of politicians fighting among themselves and getting sick of the perception that politicians were interested in them and not in the community."
She said she believed the party could recover its losses, citing how the party recovered after the 2013 swing against the Liberals at Miranda's seat in New South Wales.
"We had a 26 percent swing against us and the Coalition could regain the seat," he said.
The partial elections on Saturday were triggered by the forced resignation of Daryl Maguire for a corruption scandal.
A recording reproduced during the Independent Commission against Corruption captured Mr. Maguire discussing the "dividends" of the developers for helping to break a multimillion-dollar real estate deal for the then city councilor of Canterbury Michael Hawatt in 2016.
Prime Minister Berejiklian apologized to the voters for the resignation of Mr. Maguire.
MPs minimize the impact of the leadership spill
Treasurer Josh Frydenberg acknowledged that the spill of leaders of the federal Liberal party had had an impact, but said he believed local problems were more significant.
"Now clearly what happened in Canberra does not help the overall situation, but if you look for cause and effect, they were local factors," he told the ABC Insiders program.
The prime minister and several of the leading colleagues acknowledged that Malcolm Turnbull's murder had dissuaded some voters in Wagga, but federal Sen. Jim Molan dismissed those concerns.
Vice Premier Michael McCormack would also not rely on whether the federal coalition would be guilty of a liberal loss and said the government did not intend to lose the seat.
12.9 percent trimmed margin
A campaign with problems, accompanied by a local corruption scandal and a disorderly federal coup, has eroded its safety margin of 12.9 percent, according to government sources.
The doctor and academic Joe McGirr ruled out joining the coalition once in government.
Liberal candidate Julia Ham told the crowd that she would consider running in March if the loss occurred.
No matter the outcome, Labor candidate Dan Hayes declared that the community had
"returned to marginal Wagga" after arriving at the reception on election night to enthusiastic applause.
Hayes said local and national scandals had stoked the community's anger.
Additional reports by AAP.