The Bankstown MP sensationally announced her intention to join the crossbench in parliament on Thursday.
"The NSW Labor party has not cleaned up its act," she said.
"It's not ready to govern and as a consequence I will now be resigning from the Labor Party.
"I'm left with no other choice."
Ms Mihailuk was sacked from shadow cabinet last month, having used parliamentary privilege to link Labor upper house candidate and Canterbury-Bankstown mayor Khal Asfour to disgraced party powerbroker Eddie Obeid.
She had ignored an ultimatum from Opposition Leader Chris Minns.
"I told her that she can't stay in shadow cabinet and continue to launch repeated political attacks," Mr Minns said following her September sacking.
He had earlier announced her ejection from shadow cabinet on a Sydney commercial radio station.
Ms Mihailuk told parliament that a call from a station producer was how she found out she had been sacked.
The MP used her last speech in the lower house as a Labor member to launch an attack on the party.
"In good conscience I will not sit idly by and in silence while the NSW Labor machine at Sussex Street are actively endorsing a candidate for the 2023 state election of the ilk of Khal Asfour," she told parliament.
The Perrottet government has used Ms Mihailuk ejection from shadow cabinet as political ammunition against Mr Minns, who replaced Jodi McKay as Labor Leader.
"I don't believe that you should silence and sack a strong woman for speaking out about alleged corruption in the NSW Labor Party," Premier Dominic Perrottet said in September.
Mr Minns said she was sacked because the allegations Ms Mihailuk raised under parliamentary privilege had already been investigated, and she did not present any new information.
"It was the fact she accused someone of corruption and information hasn't been provided," he said.
Ms Mihailuk accused Mr Minns of "spinning" the story, telling media there was nothing to see regarding the matter, which she alleges is ongoing.
Ms Mihailuk was the subject of bullying claims in August, which she dismissed as "an internal stitch-up".
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