The reports on Friday claimed she used the words “retard” and “stupid” towards staff while “yelling and swearing”.
Premier Dominic Perrottet on Sunday night confirmed he had sacked the minister.
“Today I spoke with the Minister for Small Business and Fair Trading Eleni Petinos after some further matters concerning her were brought to my attention,” he said.
“In light of these matters, Ms Petinos’ service as a minister will cease with immediate effect, and I will write to the governor in this regard tomorrow.
“Minister for Customer Service and Digital Government Victor Dominello will assume Ms Petinos’ portfolio responsibilities.”
Petinos said she was proud of the work she’d done for small businesses during her time as a minister and would stay on as the Member for Miranda.
“The intense pressures and stresses of such important portfolios are significant for both staff and their Minister,” she said.
“I thank my staff for their efforts in supporting me to deliver for the people of NSW.
“I would never intentionally offend anyone or make them feel uncomfortable, and if I did I am truly sorry.”
The Department of Premier and Cabinet had earlier in the week confirmed it received an “anonymous complaint” but the staffer wanted no action taken.
Perrottet initially backed in his minister, saying he was “satisfied that the complaint was dealt with appropriately”.
But Opposition Leader Chris Minns had called for Petinos to be sacked if the allegations were true and Perrottet also promised to act if that evidence was found.
The allegations against Petinos capped a tough week for the government, after Trade Minister Stuart Ayres was accused of involving himself in the independent process of hiring the US trade commissioner.
Former deputy premier John Barilaro was given the role but eventually withdrew due to media attention.
Ayres insisted it had been “a selection process in accordance with the law”.