A corruption inquiry involving two former NSW ministers will damage the Labor party at the federal election, senator John Faulkner believes.
The NSW Independent Commission Against Corruption (ICAC) has probed claims then mines minister Ian Macdonald rigged a 2008 tender process for a coal exploration licence in the state's upper Hunter.
It has also looked into how former Labor powerbroker Eddie Obeid and his family stood to make up to $100 million from the deal.
Senator Faulkner told ABC's Four Corners program on Monday night Obeid at one time "was running the show" in the NSW Labor government.
"I've been a pretty senior figure really in the NSW branch of the Labor Party," Senator Faulkner told the program.
"I've never met him, never spoken to him and I've never heard him make a public speech, but regardless of all that, he ran the NSW Labor Party and ran Labor governments in NSW.
"Labor's standing in the state of NSW has been very, very significantly damaged by the revelations at ICAC," Senator Faulkner said.
"It would be very surprising if that didn't have an impact federally."
Senator Carr, now the foreign affairs minister, has accused Mr Iemma of a serious error by allowing Mr Obeid "special status" in his government.
"I'm sure that Morris Iemma, a very decent - decent and honest figure - would reflect that it was a cardinal mistake to allow Obeid that special status and privilege," Senator Carr told Four Corners.
But Mr Iemma says Mr Obeid had no special access under his premiership.
"He was a cabinet minister in Bob's government. He was a backbencher in my government," Mr Iemma told Fairfax Media.
Mr Iemma said, if anything, Mr Obeid's influence grew after Mr Carr removed him as minister for fisheries and mineral resources.
"I have a distinct recollection of Bob standing up in caucus and saying he wanted Obeid to focus on being a `good caucus manager'," he said.
Senator Carr issued a statement on Sunday night saying he was "proud to have expelled Eddie Obeid from my cabinet".
"Everyone knows he had no access or influence with me or my office when I was premier," he said.