Former NSW premier Kristina Keneally will run for the federal seat of Bennelong, as Labor seeks to wrest the crucial Sydney seat from Liberal John Alexander at the upcoming byelection. 

Standing alongside Opposition Leader Bill Shorten in the Sydney suburb of Eastwood, Ms Keneally quickly declared herself an underdog to win back the seat, which Mr Alexander holds by almost 10 per cent.

“I’m under no illusions that this is going to be a tough campaign,” she said.

“We do start out as the underdog in this campaign. But I’ve never shirked from a fight.”

The surprise announcement paves the way for a high profile contest between two star candidates – NSW’s first female premier and Mr Alexander, a former tennis star.

Ms Keneally, who had denied she had her eye on a federal seat numerous times, said she had only decided to run when she was recently asked by Mr Shorten.

“I am not running in Bennelong because John Alexander is a dual citizen, I am running because this is an opportunity for the community to stand up and say to Mr Turnbull – your government is awful,” she said.

The election, sparked by Mr Alexander’s resignation over dual citizenship, will be held on December 16.

ABC election analyst Antony Green said the selection of Ms Keneally was a coup by Labor.

“Labor had to get a candidate with an immediate presence, an immediate profile and Kristina Keneally certainly has that,” Mr Green said.

“She the most popular premier ever to lose a landslide election defeat.”

The Coalition was quick to attack Ms Keneally for her time in state politics, a particularly tumultuous time for NSW Labor.

“You’ve got a comparison here. One, Kristina Keneally fought for [corrupt politician] Eddie Obeid. The other, John Alexander, fought for Australia on the international courts,” Health Minister Greg Hunt told reporters.

Mr Shorten signalled the opposition would attempt to frame the poll as a referendum on the government, saying the byelection was a chance for voters to “send a wake-up call” to Prime Minister Malcolm Turnbull.

“This is a chance … that has fallen to the people of Bennelong to send a message against the dysfunction and the chaos of the current government, the policy paralysis, the failure of leadership,” he said.

The government is currently fighting two byelections, with Barnaby Joyce also seeking to win the NSW seat of New England after quitting over dual citizenship.

While Mr Joyce is widely expected to win, if Ms Keneally pulled off an upset in Bennelong, the government would be reduced to 75 seats, one short of a parliamentary majority.

Ms Keneally, 48, was the Labor premier of NSW from 2009 to 2011. She lead Labor into the 2011 NSW election, losing government with a 14 per cent swing towards the Liberals.

Mr Alexander won Bennelong from Labor’s Maxine McKew in 2010 and has increased his margin at each subsequent election.

The seat, one of the most culturally diverse in the country, was previously held by former prime minister John Howard.

Ms Keneally, who was born in Las Vegas, was quizzed on her citizenship status. But she restated she had renounced her US citizenship in 2002 before she ran for state parliament.

Mr Alexander faces a race against the clock to renounce his British citizenship before nominations close on November 23.

 – with AAP