The state government has launched a discussion paper that also proposes banning private councillor briefing sessions and strengthening lobbying guidelines in a bid to improve transparency.
The 100-page rule book governing council conduct would be re-written as a two- or three-page document similar to the one used to oversee state governments.
The move to trim down trivial concerns comes after nearly 4300 conduct complaints in the past three years, which Local Government Minister Ron Hoenig said highlighted a failed scheme.
"The current councillor code of conduct system is fundamentally broken," he said.
"It is too open to weaponisation, with tit-for-tat complaints diverting critical council resources and ratepayer money from the things that matter most to communities.
"The sheer volume of vexatious complaints being made is preventing the Office of Local Government from focusing its attention on getting crooks out of the local government sector."
Mr Hoenig told a budget estimates hearing on Thursday the office only had about 60 staff dealing with the mountain of complaints.
"It hasn't been properly funded ... and has gone from a department to an office, so their capacity to deal with matters in the way in which we want is limited," he said.
The office had received more than $37 million to restructure and was doing so, Mr Hoenig said.
The paper suggested only "serious" matters about conflicts of interest would be examined by the office, with minor issues handled by other councillors.
A local government privileges committee featuring former mayors would assess misbehaviour complaints.
Private investigators would be removed from the councillor conduct process, with the office given better resources to track legitimate complaints.
"The options presented in this discussion paper put the onus back on addressing and resolving issues of councillor misbehaviour at a local level, rather than escalating complaints for the state government or private investigators to fix," Mr Hoenig said.
The minister was also grilled about Liverpool Council, which faces the threat of suspension following a report handed to the government in July that detailed allegations of widespread misconduct.
Mr Hoenig said the decision to hold a public inquiry into the southwest Sydney council made itself.
"The only difficult decision was, with the election coming up, do you interfere with the democratic process ... and whether you suspend them during the public inquiry," he said.
The council has appealed a recent court decision dismissing its claims the report was biased.
A decision about whether to delay the September 14 election for the council had not been made, but Liverpool officials had been asked to give reasons why the vote should not be deferred, Mr Hoenig said.
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