The federal government insists it will be business as usual with the temporarily leaderless NSW government, which lost its premier in spectacular circumstances on Wednesday.
But federal Liberals admitted their brand had taken a "hammering" in the state after widening corruption investigations had roped in senior figures from both sides of politics.
The shock resignation of Barry O'Farrell came just as the two governments agreed on a multibillion-dollar infrastructure package designed to support the second airport at Badgerys Creek, and to assuage local fears of increased noise and traffic congestion.
Mr O'Farrell's departure, a casualty of the Independent Commission against Corruption inquiry into Australian Water Holdings, has also increased the pressure on embattled Assistant Treasurer, Arthur Sinodinos.
Senator Sinodinos remains in a quasi-ministerial limbo, having voluntarily stood down last month to answer questions at the ICAC hearings about his role and level of knowledge in the management of Australian Water Holdings.
Federal Liberals were stunned and saddened on Wednesday morning when, instead of meeting Prime Minister Tony Abbott at Liverpool Council in Sydney's west to triumphantly unveil a $2.9 billion roads package, Mr O'Farrell was on his feet in the CBD and in full retreat.
The sudden turn of events caught journalists and even the Prime Minister off-guard, with the strain clearly showing on his face.
The normally even-tempered Mr Abbott responded angrily to a suggestion from a reporter that voters would now see the Liberal Party in NSW as corrupt and thus unable to deliver airport and related infrastructure as a result of the O'Farrell revelations.
He branded that "an entirely unjustified smear", calling on the reporter to back up the statement with evidence or retract.
"I think you should withdraw that and apologise because there is no evidence whatsoever for that," he said, his face barely concealing his deep feelings.
It was a moment that summed up the percussive impact on Liberal politics in NSW of Mr O'Farrell's resignation.
Liberals federally say the O'Farrell departure has weakened public confidence in politics across the board and the standing of the governing party in the most populous state - Mr Abbott's own.
One senior figure said it was unclear if Mr O'Farrell's resignation would make it harder for Senator Sinodinos to justify a return to the Abbott frontbench.
But another said it made his return all but impossible.
The hearing into AWH has already heard directly from Senator Sinodinos, a highly regarded former chief of staff to prime minister John Howard, who had left politics in 2006 to pursue a business career in Sydney.
But a subsequent inquiry is likely to drill down further on the murky relationship between senior political figures, cashed up businessmen, and the payment of political donations via means designed to circumvent the electoral laws.
Senator Sinodinos, 57, returned to Canberra after a six-year absence, filling a senate vacancy created by the departure of Helen Coonan.
During that time, according to his parliamentary biography, he was a "banker", although he was also a company director and chairman at AWH, and an executive member and honorary treasurer of the NSW state division of the Liberal Party.
The massive building program plan involves several major Sydney road upgrades, including the expansion of the Northern Road to four lanes from Narellan Road to the M4, and the upgrade "to a very high standard" of Elizabeth Drive from the M7 to the Northern Road.
Mr O'Farrell's absence also left the Prime Minister to announce that the NSW government would move to secure the rail corridor from the south-west rail link to Penrith, despite there being no federal funds involved.
Having styled himself as "the infrastructure prime minister", Mr Abbott said all of the projects were crucial to the state's development, to the local economy, and to the national economy.
