More than a year after leading NSW Labor to its most crushing defeat in history, Ms Keneally confirmed on Saturday morning she would be stepping down as the member for Heffron on June 29.
She is leaving to take up the post of CEO of Basketball Australia from next month and start a “new phase” in her life.
She said despite the party’s recent defeat, she was proud of her time in politics.
“Even on the toughest days as premier, I always had the strength to get back up again.”
After the last state election, which left the party with just 20 seats in the 93-seat Legislative Assembly, the US-born MP moved to Labor’s backbench.
The 43-year-old had vowed to serve out a full parliamentary term but admitted on Saturday she could no longer give politics her full attention.
By leaving now, she said the party had a chance to reinvigorate itself.
“I offer the ALP the chance to send the parliament a new and energetic member who can contribute to the next Labor government in NSW.”
NSW opposition leader and Ms Keneally’s predecessor John Robertson said her departure had come as a surprise but he was looking forward to breathing some new life into the seat.
While refusing to be drawn on possible candidates he told AAP speculation Labor’s leader in the upper house, Luke Foley, would be parachuted into the seat was wrong.
“I have spoken to Luke this morning and he categorically ruled it out,” Mr Robertson said.
The new candidate would be announced following discussions with the party.
When this would be was not yet clear, he said.
Labor holds Heffron with a 7.8 per cent margin.
But Labor registered just 24 per cent of the primary vote in the latest Newspoll.
Mr Robertson said whoever won preselection would mount a strong campaign at the by-election – focusing on changes to WorkCover, the slashing of government jobs and the decision to hike public housing rents.
NSW Deputy Premier and Nationals leader Andrew Stoner also predicted the competition would be fierce after the Liberal party’s strong showing in March last year.
“This is going to be a pretty interesting by-election should the Liberals put forward a strong candidate,” he said in Bowral.
Mr Stoner acknowledged Ms Keneally’s contribution to the state but said since moving to the backbench she had been disinterested in parliament and politics.
“To be fair Kristina Keneally’s time as premier was a difficult time, I think the Labor factions were out of control and the government were on a slippery slope (and) some of the bad decisions made under previous premiers became hers to deal with,” he said.
But Ms Keneally said her resignation may not mean she never returns to politics.
“Never say never … You can come back in 10 years and ask me.”