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Health Minister Sussan Ley's first choice as top adviser was knocked back by Prime Minister Tony Abbott's controversial chief of staff, Peta Credlin.
Fairfax Media has confirmed with three sources – including one familiar with the inner-workings of the "star chamber" that vets government staff - that Rowena Cowan was knocked back by Ms Credlin in recent weeks.
A spokesman for the Prime Minister denied the story, declaring it was "wrong" but would not elaborate.
The well-respected Ms Cowan is an experienced staffer who worked for senior Howard government ministers Nick Minchin and Richard Alston and who has also enjoyed a successful career in the corporate sector. She returned to politics after the 2013 election to work as Ms Ley's chief of staff when she was a junior minister.
She quit after the decision was taken to not let her remain chief of staff to Ms Ley, who was made a cabinet minister in the December reshuffle. She also knocked back an offer of a more junior role as senior adviser.
Ms Credlin is a member of the so-called star chamber that vets Abbott government staff. The group includes ministers Kevin Andrews and Michael Ronaldson, communications director Andrew Hirst, Liberal Party federal director Brian Loughnane and Deputy Prime Minister Warren Truss's chief of staff, David Whitrow.
Her micro-management of staff choices has been a sore point among Coalition MPs and news of the latest intervention could reignite criticism.
Contacted by Fairfax Media, Ms Ley's office confirmed Ms Cowan had recently quit.
A spokesperson did not deny Ms Credlin had overruled Ms Ley, offering only a "no comment".
Ms Cowan said: "I have absolutely no comment to make".
Ms Ley instead hired Cath Patterson, who served in the same role for former health minister Peter Dutton.
Ms Ley is not the first cabinet minister to have their choice of chief of staff knocked back by the star chamber.
In the months after the 2013 election, Employment Minister Eric Abetz' first pick for chief of staff, Chris Fryar, and Communications Minister Malcolm Turnbull's first pick for chief of staff, Sally Cray, were both knocked back.
Treasurer Joe Hockey was also overruled on his first choice for adviser on foreign investment decisions, while Agriculture Minister Barnaby Joyce and former assistant treasurer Arthur Sinodinos also had proposed hires rejected.
More than a dozen Coalition staff members have told Fairfax Media the star chamber is dominated by Ms Credlin.
"It's called the star chamber but there is only one opinion that matters," one said.
"The thing about the star chamber is that Peta has just vetoed people she didn't want, she's just filled offices with acolytes, that's one of the reasons the government is now treading water."
At the same time, senior figures in the party's powerful right wing told Fairfax Media the crisis engulfing Mr Abbott's leadership could widen because he refused to make the one big change many colleagues most want, which is Ms Credlin's removal.
Several MPs, all of whom asked not to be named, said next week's first party room meeting for 2015 loomed as a crunch point with demands Ms Credlin be removed before then.
One warned Mr Abbott could face a party room uprising on the issue and that the chief of staff's position was untenable, as was that of her husband, Mr Loughnane.
"He cannot do his job and advise the Prime Minister objectively on what's going wrong while his own wife remains so central to the problem," the source said.
MPs believe one of the positions has to be vacated.
"Either Credlin goes or Brian should step down," the source said.
