"Dysfunctional" councils could be suspended for up to three months under new legislation being introduced by the NSW government.

The proposed laws would give the Local Government Minister Don Page new powers to issue a `performance improvement order' and suspend a council for up to three months, with a possible extension of a further three months if it fails to comply with the improvement order.

Mr Page said that while most councils performed to high ethical standards, a minority of councils and councillors had failed to meet their obligations, resulting in services being held up or stopped.

He pointed to incidents of relationship breakdown between councillors and the general manager at the Broken Hill and Shellharbour councils.

"Other examples include infighting amongst councillors and the failure of a council to do due diligence on a major project," Mr Page told AAP.

"It is unacceptable that services including planning approvals and basic maintenance are put in limbo because of council infighting, councillors indulging in personal vendettas or petty political squabbles," he said.

The current process to suspend whole councils is costly and can also take up to 18 months, Mr Page said.

"We need to be able to nip these problems in the bud and this legislation will enable that."

He said a key part of the reforms is the Performance Improvement Order (PIO).

"If the PIO is adhered to that is the end of the matter. However if the PIO is ignored, the government has the power to suspend."

The minister hopes the legislation will deter misbehaviour.