NSW Liberals president Philip Ruddock confirmed on Tuesday that the party had decided "to not proceed" with the endorsement of Grant Schultz, who had the overwhelming backing of local party members for preselection in the federal seat of Gilmore.

Mr Ruddock said Mr Schultz had "nominated against a sitting member (Ann Sudmalis), who later withdrew".

"The party should be able to consider the best candidate to represent voters, their aspirations and concerns in each community," Mr Ruddock said in a statement.

In announcing he would stand as an independent at the election expected in May, Mr Schultz - the son of veteran Liberal MP Alby Schultz - said the rights of local party members had been ignored.

"I cannot be a member of a party that does not support democracy or act with integrity," he told reporters at Nowra on Tuesday.

"The prime minister has stated that he believes in a fair go. He has not given me that."

He told his local paper, the South Coast Register, his late father would be "rolling in his grave in utter disgust and anger" at the actions of the party's "faceless men".

Labor is targeting the seat which was held by Ms Sudmalis by a margin of 0.73 per cent.

Mr Morrison is working behind the scenes to install Mr Mundine, who he described as a "top bloke" when asked about the move by reporters on Tuesday.

Mr Mundine was the ALP's national president from 2006 to 2007, before he quit the party in 2012.

He recently considered running for a seat for a number of conservative parties, after being unsuccessful in winning preselection for a Labor seat.

"I think Warren Mundine has got a lot to offer, and he's already been offering quite a bit. I've been a friend of Warren for some time," Mr Morrison said.

The indigenous leader could be formally announced as the Gilmore candidate as early as Wednesday morning, but the party will need to first approve his membership and exempt him from the rule which requires six months membership before running as a candidate.

Labor leader Bill Shorten said Mr Mundine had not succeeded in winning Labor preselection.

"He was unsuccessful in the Labor Party. It's a free country you can run for whatever party will have you," he said.

Mr Morrison also said it was a "free country", after a former adviser to Malcolm Turnbull announced an independent run against Tony Abbott in Warringah.

"I'm running because I have good ideas for Warringah and the nation and a track record of getting things done in government for the public interest," Alice Thompson tweeted.

Australian Associated Press