The withdrawal of up to $224 million could be the single biggest blow to tobacco investment ever seen in Australia, but will need the support of the independent State Super to be fully implemented.

The chief executive of action on smoking and health Australia, Anne Jones, said the NSW decision could lead to other governments and super funds taking similar action.

''It's possible that billions of dollars are invested in tobacco companies by Australian Governments and individuals through their super funds,'' she said. "Take billions away from an industry and you take away their power and influence to expand''.

The health director of the Heart Foundation, Julie Anne Mitchell, said smoking was still the No.1 cause of early death in NSW. "Actions like this help us in our daily fight against tobacco companies," she said.

The NSW branch of the Australian Medical Association also welcomed the move.

The chief executive of State Super, John Livanas, said the organisation's $158m investment in tobacco was only a fraction of its $35 billion portfolio. He said State Super was an independent trustee corporation that would make its own decision after receiving a formal request from government.

''The moment we receive that note I will initiate the review process straight away,'' he said.

The Greens MP John Kaye, who has campaigned against government tobacco investment, said if State Super did not agree the Greens would put forward legislation in February to force it to.

"If Jillian Skinner and Mike Baird are serious about their commitment and getting the state out of tobacco they will support our legislation," he said.

The NSW Treasurer, Mike Baird, said the government would immediately begin the process of removing tobacco investments from the portfolio of the NSW Treasury Corporation and other public sector agencies.

"The O'Farrell Government is leading the way in tobacco control measures and it's entirely appropriate for us to divest the State of all tobacco investments and to ban them going forward," he said.

This month Fairfax Media revealed the treasury corporation had nearly $29m indirectly invested by fund managers in tobacco companies, a figure since revised to $27m due to fluctuations in the market. Mr Baird said WorkCover also had about $39m invested.

The Federal Government's Future Fund, currently invests about $210m in tobacco companies and is reviewing its policies.