Obeid had previously been accused, but cleared, of corruption as a minister, and been mired in controversy as a party powerbroker. They have been expelled from the party.
The stain from the revelations emerging from the ICAC hearings spread from NSW to the federal Labor Government.
"I think there is a boil that needs to be lanced here," Assistant Treasurer David Bradbury, who holds the outer western Sydney seat of Lindsay, told Sky News.
Rudd, intent on clearing the decks after his return as leader last week, added NSW Labor's problems to a weighty list that includes asylum seekers and the carbon tax.
Yesterday Rudd said that the party's national executive would take control of the NSW branch for 30 days, sidelining its top members and officials to impose a tough new set of rules to stamp out corruption.
Under his plans MPs would be subject to a "one-strike" policy that would result in immediate expulsion for any implicated in corruption.
The planned rules will also impose greater judicial oversight of the state objective, and bar property developers from becoming MPs unless they divest their major interests.
NSW Labor leader John Robertson said he was "incredibly enthusiastic" about Rudd's action.
"This sends a strong message to the community that we in the Labor Party won't ever stand for corruption."
