Luke Foley denies putting his hand down an ABC journalist's underpants but has resigned as NSW Labor leader as a result of the scandal, saying he will fight the allegations in court.
Mr Foley on Thursday said allegations he groped Ashleigh Raper at a 2016 parliamentary Christmas party were false and he would launch defamation proceedings.
"I've retained solicitors and senior counsel to advise on the immediate commencement of defamation proceedings in the Federal Court of Australia," he told reporters.
"However I can't fight to clear my name and fight an election at the same time - it's just not possible to do both."
Mr Foley said he will stay on as the member for Auburn and return to the backbench.
Responding to Mr Foley's decision to fight the allegations and remain on the backbench, one of his Labor colleagues said "that is unbelievable".
"What was that?" the MP told AAP.
"The two other MPs I've spoken to said that is atrocious. I think he is just refusing to go in a dignified way."
Mr Foley came under immense pressure from his own MPs to resign as leader after Ms Raper's allegations were laid out in a statement released by the ABC on Thursday.
Ms Raper wanted to "set the record straight" about the November 2016 incident in Sydney's CBD following widespread speculation.
She said the incident involving Mr Foley happened at a bar in Martin Place following a Christmas function involving politicians, their staff and journalists at Parliament House, when he approached her and others to say goodnight.
"He stood next to me. He put his hand through a gap in the back of my dress and inside my underpants. He rested his hand on my buttocks. I completely froze," she said.
She said the incident was witnessed by another journalist but she did not make a complaint for a number of reasons - including for fear of losing her job and the negative impact it would have on her family.
But the matter resurfaced in October when Liberal minister David Elliott raised it in NSW parliament, with Mr Foley repeatedly denying any wrongdoing.
Ms Raper said the opposition leader called her on Sunday to apologise, telling her: "I'm not a philanderer, I'm not a groper, I'm just a drunk idiot".
He told her he would resign as leader of the NSW Labor Party either on Monday or Wednesday.
However he backtracked on Tuesday, calling her to say he wouldn't be resigning based on legal advice.
Ms Raper said the "time has come for my voice to be heard" and wanted the political point scoring and speculation to stop so she could get on with her life.
NSW detectives have reached out to ABC management saying they stand ready to investigate if Ms Raper chooses to make a formal complaint.
"If a complaint is received the matter will be taken seriously and will be thoroughly investigated by detectives as would any allegation of this nature," a spokesman said.
The ABC said it was "extremely unfortunate" media and public pressure had caused Ms Raper to speak publicly on an issue she didn't want to pursue or comment on.
"There is absolutely no suggestion of any wrongdoing by Ms Raper and her career should not be affected in any way," the public broadcaster said in a statement.
Deputy leader Michael Daley appears to be the frontrunner to replace Mr Foley.