In the weekend by-election for Willoughby on Sydney's north shore, Liberal candidate Tim James had been expected to win handily, but is now less than four per cent ahead of Larissa Penn.
Ms Penn said the 19 per cent swing against the government did not surprise her, after campaigning against infrastructure projects.
The most recent count puts the Mr James ahead at 51.8 per cent, with Ms Penn at 48.2 per cent in two candidate preferred count.
Ms Penn told The Daily Telegraph the community feel their interests had been overlooked because the Liberals considered them a sure bet.
The seat was held for 18 years by former NSW premier Gladys Berejiklian, which she commanded with a 21 per cent margin before resigning in October 2021.
Ms Penn said the electorate was motivated by local issues including the construction of new harbour tunnels that will ease traffic into the city, but bring little benefit to Willoughby.
NSW Premier Dominic Perrottet on Thursday said he felt comfortable his party would retain the seat, despite it sitting on a knife's edge.
"I'm still confident Tim James will be elected, as I've always said," Mr Perrottet said.
"The people of Willoughby will choose well. They have had their member go on to lead our party in opposition and then as our premier.
"The counting will take place over the next couple of weeks and we'll wait and see."
Ms Penn campaigned against the government's Western Harbour Tunnel and Beaches Link projects, claiming the projects posed local environmental risks and presented poor cost-benefit ratios.
Opposition Leader Chris Minns said Labor supports building a second Harbour tunnel, and the "implications of not building a second tunnel would be devastating for traffic into the CBD".
He said the project is supported by the independent government body Infrastructure Australia.
"What we don't support is the Beaches Link - that's not supported by Infrastructure Australia, that's not supported by the facts on the ground."
Mr Minns said the $10 billion project is not an urgent priority for Sydney.
"When the majority of the population is projected to go past Parramatta, that's where the infrastructure for NSW needs to be, not on the northern beaches."
The final results in Willoughby may not be known until later in February due to a surge in postal votes.
The NSW Electoral Commission will count a tranche of these votes on Saturday.
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