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The state government is threatening to pull funding from some Western Sydney libraries following a council vote to remove same-sex parenting books from shelves.
A slim majority of Cumberland City councillors voted for the book ban in a heated council meeting last week.
The motion was brought by former mayor, Councillor Steve Christou, who told the council meeting he had been contacted by "distraught local parents" who found a book on same-sex parenting in the "toddler section".
Arts Minister John Graham said he was considering financial implications for the council.
"We are examining the consequences this decision may have for the council continuing to receive library funding from the NSW government," he said.
"When civilisations turn to burning books or banning books it is a very bad sign. That is equally true for local councils.
"It is up to readers to choose which book to take off the shelf."
Six councillors voted for the motion, which read: "That Council take immediate action to rid same sex parents books/materials in Council's library service."
Five councillors voted against it, including Mayor Lisa Lake.
During the council meeting, Councillor Christou said same-sex parenting books did not align with the values of his community.
"Our kids shouldn't be sexualised," he said.
"This community is a very religious community, it is very family-orientated.
"Whether they are Catholic, Orthodox, Islamic, Hindu, whatever their background, they all have the same beliefs: family, religious values and conservative."
Speaking against the motion, Councillor Diane Colman condemned the move as "book burning" and said all types of families should be cherished.
"It's a sweet little book that is written specifically for children who have same-sex parents, so that they know that their parents are ok, that their families ok" she said.
Equality Australia legal director Ghassan Kassisieh said providing the children of same-sex couples with books that reflected their lives helped to ensure public libraries were inclusive spaces for everyone.
"Councils should offer services to all people in their local community without discrimination," they said.
"They should not be cancelling rainbow families — or anyone — off their library shelves."
Earlier this year, Cumberland City Council passed a motion to ban drag queen "story time" events, where drag queens read books to children, at its facilities.
Hundreds of locals attended the meeting in support of the ban.