Barry O'Farrell announced on Wednesday he will resign as the premier of Australia's biggest State of New South Wales (NSW) over a corruption allegation from the state's corruption watchdog.

O'Farrell told the Independent Commission Against Corruption ( ICAC) on Tuesday that he could not recall receiving a 3,000- Australian-dollar bottle of wine in 2011 from Australian Water Holdings executive Nick Di Girolamo.

Earlier this morning before the ICAC was due to resume, however, the investigators uncovered that O'Farrell had located a "thank you" letter signed by him and addressed to Di Girolamo.

But the outgoing premier still insisted he did not lie to the ICAC, blaming a "massive memory fail" for his trial.

"I can't explain what happened to that bottle of wine. But I do accept there is a thank you note signed by me, and as someone who believes in accountability, in responsibility, I accept the consequences of my action," O'Farrell told reporters.

After his announcement of resignation to the media, the ICAC confirmed O'Farrell will be recalled to the witness box at noon.

O'Farrell is expected to step down next week, becoming the second NSW premier to fall at the hands of ICAC. His replacement will be announced by that time.