But the regional NSW council has ruled out selling or breaking up a collection of 100 Australian artworks donated by Bronius "Bob" Sredersas in 1978 that makes up the foundation of the gallery's holdings.
Having escaped from Lithuania to Australia after the war, Mr Sredersas lived in Wollongong and amassed a large collection including works by famed artists Margaret Olley, Pro Hart and Norman Lindsay. He died in the early 1980s.
Some months ago, the gallery and local council were alerted to documents showing the celebrated donor was a Nazi collaborator in Lithuania, and on Wednesday the council met with the Sydney Jewish Museum to discuss how to deal with his past.
Research by the museum confirmed Mr Sredersas served as an intelligence officer for the Nazis while Lithuania was under German occupation, but he was a minor player in the regime.
His role in the intelligence agency known as the Sicherheitsdienst, or SD, would have been to implement Nazi policies, the research found, but no records exist to show he was directly involved in the Holocaust or other acts of genocide.
Nevertheless, Wollongong Mayor Gordon Bradbery said Mr Sredersas would have been aware of or complicit in the Nazi elimination of the Jewish community in Lithuania.
"He would have been across some of those SS war crimes and those responsible for implementing the Nazi policies," he told AAP.
A sign has been removed from the area of the gallery dedicated to Mr Sredersas, and commentary will be put up explaining the donor's history.
None of the works he donated are currently on display and the gallery will consider whether any of them should be used in upcoming exhibitions.
However, Mr Bradbery said the Jewish Museum had not asked the council to take down or disperse the collection.
"We've got custodianship of it, and we need to honestly represent it and not resile from the ugly past truths behind it," he said.
The personal history of the gallery's donor was not the fault of the artists, Mr Bradbery added.
"You've got to look at those pieces of art for what they are, they're significant paintings and contributions to the history of Australian art."
Mr Bradbery said the experience of uncovering Mr Srederas's dark past was common to many cultural institutions researching the provenance of their collections.
"We are people who have come from conflict, dislocation, trauma, and so on, some of those stories are heroic stories, others highlight some pretty sad and unethical parts," he said.
The gallery will also update its online catalogue and website with information about Mr Srederas's history.
19°C