Gladys Berejiklian's government will leave Sydney with a lop-sided patchwork of councils, after abandoning its policy of local government amalgamations half-way through.

The Premier announced on Thursday that her government was walking away from its policy of merging Sydney councils that have challenged their amalgamation in court.

The about-face means that the state government will have created huge discrepancies in the size of councils across Sydney. The forced merger of Canterbury and Bankstown councils last year created a mega-council of 360,000 residents; after Thursday's announcement Hunters Hill Council will remain independent and serve about 14,000 residents.

Ms Berejiklian attributed the abandonment of the council merger policy to the protracted nature of legal challenges launched by local governments that had resolved to resist their merger. She said she could not in good conscience allow electors to vote in council polls in September while not knowing what would happen to their councils.

"There's no doubt that the court proceedings in relation to local government has provided a degree of uncertainty," Ms Berejiklian said.

"Our decision today as a government is to provide certainty to the community for the September 9 council elections," she said.

The decision follows a run of abandoned policies, including banning greyhound racing, privatising the operation of a number of hospitals, merging some regional councils, and introducing a fire and emergency services levy.

It affects 14 councils that were to have been merged into five. The fourteen affected councils are: Burwood, Canada Bay and Strathfield; Hornsby and Ku-ring-gai; Hunters Hill, Lane Cove and Ryde; Mosman, North Sydney and Willoughby; and Randwick, Waverley and Woollahra.

Ms Berejiklian said the policy of council mergers was a "sound" one, and residents in areas where councils had been amalgamated had benefited.

"On this issue I believe in the government's policy position," Ms Berejiklian said. "But there's no doubt the implementation could have been better."

The policy, however, leaves many questions unresolved. For instance Hornsby Council, which supported its proposed merger with Ku-Ring-Gai, will now not be merged. But Hornsby says it is about $10 million worse off after the Epping area was carved off to a new City of Parramatta Council last year.

Randwick Council, which now will no longer be merged with Waverley and Woollahra, said it would seek full compensation from the government for the costs incurred in preparing for its merger.

The government's hopes of merging the remaining Sydney councils suffered a major blow in March when the NSW Court of Appeal found legal faults with the process used to attempt to amalgamate Hornsby and Ku-Ring-Gai. 

A similar process was used in the attempt to merge the three eastern suburbs councils, Waverley, Randwick and Woollahra, though the Court of Appeal, after a challenge to that merger brought by Woollahra, found no fault.

The High Court, however, agreed to hear a challenge to the Woollahra decision. That matter was expected to be heard in October or November. Legal challenges brought by other Sydney councils were expected to hinge on the result and reasoning of the Woollahra matter.

"I'm the first one to hold up our hand and say we did not anticipate that this number of councils would take the government to court, and we did not anticipate the court processes would take this period of time," Ms Berejiklian said. 

She also accepted culpability on behalf of her government for some of the failures of process.

"Perhaps up to two years ago when we entered into this process, with the benefit of hindsight we should have done things differently," she said.

"I'm going to be the first one to say that. Perhaps we should have listened earlier on in the process."

The about-face was immediately welcomed by councils and representatives who had fought against the merger policy, and derided by the opposition.

"Another day another backflip," said Labor leader Luke Foley. 

 "It is a great day for local democracy and we commend this eminently sensible decision," said the president of Local Government NSW, Keith Rhoades.