NSW Premier Dominic Perrottet says he decided to sack Eleni Petinos after receiving information leading him to believe her office was not a safe environment.
Ms Petinos was removed from her role as fair trading and small business minister on Sunday night, days after media reports on allegations of bullying in her office.
"Last night was a very difficult conversation for me to have," Mr Perrottet told reporters on Monday.
After making enquiries into Ms Petinos' office, Mr Perrottet said he had to act based on the information he was given.
"I note that she denies the allegation ... and I accept that, but based on the enquiries that I made over the course of yesterday I've formed the view that her position was not tenable."
"That's my judgment call.
"I need to ensure that every office workplace is safe, whether it's in the NSW government or anywhere across our state."
Mr Perrottet said he could not speak about the information provided to him by the public service because a newly established parliamentary complaints process included an anonymous reporting option.
"It is incredibly important that we allow for anonymous complaints to be made," the premier said.
He asked people to trust his judgment on the matter "because the decision I made is to ensure that staffers and members of the public service feel comfortable in a workplace environment".
Mr Perrottet would not rule out Ms Petinos returning to his cabinet, calling her a passionate young minister who had worked incredibly hard.
He announced the fair trading minister would be removed from his cabinet with immediate effect on Sunday evening, saying "some further matters" had been brought to his attention.
Reports on Monday said Ms Petinos was sacked over her dealings with a public service department, and her departure was not directly related to bullying allegations.
Ms Petinos issued a statement thanking her staff and signalling she intends to continue as the member for Miranda.
"The intense pressures and stresses of such important portfolios are significant for both staff and their minister," she said.
"I would never intentionally offend anyone or make them feel uncomfortable, and if I did I am truly sorry."
Minister for Customer Service and Digital Government Victor Dominello will assume Ms Petinos' portfolio responsibilities.
A report had claimed one of Ms Petinos' former advisers lodged a complaint with the Department of Premier and Cabinet about being "relentlessly bullied" by others while at work.
Up to eight staff members had left her office in the past seven months, according to reports.
NSW Labor leader Chris Minns said the premier needed to provide a proper explanation of what had led to the minister's sacking.
"You seem to get more information when an NRL player is suspended rather than a minister of the crown has been sacked," he said on Monday.
"This is not a family business, this is not a private company, this is the government of NSW, these are taxpayer funds.
"When a minister of the crown is sacked, the taxpayers of the state deserve to know what the circumstances were."
