A new arts and culture agency, given the working title Create NSW, could be created within the Department of Justice, replacing the two policy and funding bodies.

"It has been a long time since Arts NSW and Screen NSW have looked at how they operate," Arts NSW spokesman Matt Sun said.

"As such, Arts NSW and Screen NSW staff are currently participating in discussions about how they can provide even better service to the state's art and cultural industry."

Mr Sun said no decisions had been made about the two agencies, with staff "encouraged" to provide suggestions on all matters.

However, Labor's arts spokesman Walt Secord said the NSW government was contemplating a "forced merger" of Arts NSW and Screen NSW and "pending job cuts".

"Distressed staff contacted the opposition on Friday to say they were told that they would have to re-apply for their jobs and in some cases, at a much lower pay rate," he said. "They were told to 'lump it or leave'."

Mr Secord said Labor would seek to recall the Deputy Premier and Arts Minister, Troy Grant, to appear before budget estimates hearings in October to answer questions about the mooted reorganisation of the arts agencies.

"Unfortunately, the Liberals-Nationals believe that attracting an American action film to eastern Sydney constitutes supporting Australian arts," Mr Secord said. "Labor believes otherwise, and want to support a range of media. We want to foster a local NSW arts scene – and slashing hard-working, intelligent and committed arts advisers is not the way."

Nick Player of the Public Service Association said the union had been briefed by management about the reforms.

"It involves the establishment of a new integrated arts and culture agency within the Department of Justice that will be called Create NSW," he said. "In short it will replace Arts NSW and Screen NSW."

He said the union and staff entered into a "consultative process" last Friday.

"We have initial overarching information to comment on and we are advised that our responses to that will be used to help define the structure and staffing of the organisation," he said. "The PSA obviously will be arguing to try to ensure existing employees obtain positions in this new structure."

Arts NSW is the NSW government's arts and culture policy and investment body and is led by Michael Brealey, while Courtney Gibson is the chief executive of Screen NSW, which funds and promotes the movie industry in NSW.

Arts NSW had a grant allocation of $51.8 million in 2015-16 financial year and employed 51 full-time equivalent roles, while Screen NSW had a $10 million budget and 17 full-time equivalent roles.

Peter Rabbit and Bleeding Steel are two of the latest movie projects to be filmed in NSW with support from taxpayers.

Arts NSW was criticised by Regional and Public Galleries NSW, which represents 40 member galleries, in its written submission to the NSW parliamentary inquiry into museums and galleries.

"On balance, RPGNSW members are less than satisfied with the current performance and effectiveness of Arts NSW across many areas of operation."