Labor MP Hugh McDermott's military service record was referred by senior party officials to a candidate review committee before the 2015 state election after an anonymous allegation was sent to ALP head office.
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But a party source said there was insufficient evidence to support the allegation that there were "issues" with Dr McDermott's service record.
He went on to win a bitterly contested rank and file preselection to successfully contest the western Sydney seat of Prospect at last year's election.
On Thursday, Dr McDermott said the complaint to the ALP was "an anonymous smear, much like the ones I'm being subjected to now. I make no further comment".
Fairfax Media has revealed Dr McDermott was refusing to consent to the public release of key details of his Australian Army Reserve service to back up a statement in his inaugural speech to parliament that he was a non-commissioned officer (NCO), achieving at least the rank of Lance Corporal.
After securing his full service record from the defence department, Dr McDermott was only able to show Fairfax Media a 1991 leave application form on which he has handwritten his rank as Lance Corporal. It is signed by two of his superior officers.
He has been unable to produce any documentary evidence from his official service record to support another claim that he also achieved the rank of Corporal.
NSW Veterans Affairs minister David Elliott has accused Dr McDermott of potentially misleading the NSW Parliament and challenged him to "come clean" on his service record by tabling it in the NSW Parliament.
But Dr McDermott has refused, claiming the army's service record provided to him "is littered with errors – including even the misspelling of my name".
"I have no intention of giving the Herald – nor those in the background pushing this smear campaign – access to personal records, which contain factual errors."
