New South Wales Premier Gladys Berejiklian has called for a radical rethink of federal-state relations.

The Premier focused her address to the National Press Club on the historic links between the tiers of Australian government and the Council of Australian Governments (COAG) process.

“The truth is modern federal-state relations are clunky and now thrive on mediocrity,” Ms Berejiklian said.

One of her major frustrations came from ministerial council meetings in which the ACT — with its population of 400,000 — gets an equal voice to a state of 7.7 million.

“The people of NSW should not continue to be held hostage to a lowest common denominator approach that privileges the parochial interests of small populations,” Ms Berejiklian said.

She argues that the style of federalism from former prime minister Bob Hawke’s era has run its course.

“Too often COAG is a brake on reform, and in some cases a blockage,” the Premier said.

Ms Berejiklian called for COAG's agenda to be cut down just issues with a truly national focus.

She the 45 separate national partnerships and project agreements with the Federal Government scrapped or shelved because they are “too complex and in the end there is little ability to enforce the terms of the deals we have agreed”.

She argued for a system that rewards governments for assisting reform.

“Perhaps a better approach is a system of earned autonomy,” Ms Berejiklian said.

“For the states that take the lead on reform — asset recycling, deregulation, service innovation — the Federal Government could step back, and allow greater flexibility in how we deliver our responsibilities.

“Today I am saying that we need to have an honest conversation about what works in our federation and what doesn't — and that we need a more flexible approach to deal with an increasingly diverse nation.

“Let's try it with one state by looking to more bilateral agreements between the Commonwealth and a state — and if it can work, then others can choose to embrace it.”

ACT Chief Minister Andrew Barr said it was “pretty unfair” to single out the ACT, when other small jurisdictions did less.

“I don't think the ACT is the roadblock to a better-functioning COAG process,” he said.

“Of all parts of Australia, Canberra is more focused on national priorities than anywhere else.

“I know it's pretty commonplace to attack Canberra, state premiers love attacking Canberra.”