The corruption watchdog is inquiring into the granting of coal exploration licences in the NSW upper Hunter and whether they were rigged to benefit the Obeid family.
Mr Rees said Mr Obeid and certain members of Labor's right faction had huge influence while he was premier and in the preceding period.
"People build very close relationships or enormous hostilities (in politics)," Mr Rees told Fairfax Radio.
"That's the situation we ended up facing in NSW where a small sub-faction of the right-wing faction controlled all the votes.
"When it came to elections or positions of power and ministerial spots and so on, including mine when (former premier) Morris (Iemma) resigned, then those people exercised disproportionate influence."
Mr Rees said NSW Labor leader John Robertson needed to go further to change the party's culture after announcing a range of reforms to make MPs more accountable.
"We need to go further and have root and branch reform of the party's culture," Mr Rees said.
"My strong view is that if we don't engage in root and branch reform of the party's culture then we face the very real risk of political irrelevance."