Father Finian Egan, a former priest at the Carlingford Catholic church attended by Mr Smith and whom the attorney-general once thanked in parliament for his "Irish wit and pastoral devotion to his flock", is on bail after being charged with sex offences relating to one boy and three girls.
The Sun-Herald reported on Sunday that Mr Smith's chief of staff, Damien Tudehope, had ruled an application lodged by the NSW opposition for documents on Egan under the Government Information (Public Access) Act was out of bounds.
In his response, Mr Tudehope reportedly said in June there was an "overriding public interest against disclosure", and that the material was "provided to the minister in confidence".
A spokesman for Mr Smith also told the Sun-Herald Mr Tudehope acted on the advice of the crown solicitor.
Opposition Leader John Robertson, who has described Egan as a personal friend of Mr Smith, said on Sunday the matter should be investigated because of Mr Tudehope's and Mr Smith's ties to the priest.
"This attorney-general has got some serious questions to answer and obviously there needs to be a proper investigation into exactly what's going on with this attorney-general and his approach," Mr Robertson told reporters in Sydney on Sunday.
"I'm not going to make allegations," he said.
"(But) if he has acted wrongly he should be sacked."
Egan was charged in May with 17 sexual offences against the four minors which allegedly occurred between 1972 and 1987 while he was serving as a priest in parishes in Sydney and on the NSW Central Coast.
Mr Tudehope's brother Anthony Tudehope, a barrister, reportedly attended the police station with the priest when he was charged.
Mr Smith was not immediately available for comment when contacted on Sunday.