The memorandum of understanding between Canada Bay, Ashfield, Burwood, Leichhardt and Marrickville councils comes before a meeting of seven northern Sydney councils to consider whether they can  also take a joint approach to a policy that is deeply unpopular among many in the local government sector.

The state government has given councils until the end of June to present their preferred merger options, or to justify why they are sustainable without doing so.

This Fit for the Future package includes more than $250 million in incentives to councils prepared to merge voluntarily, but the government has left open the possibility that it will force them to do so if they decline.

The policy followed an Independent Local Government Review Panel report, commissioned by the state government, which recommended reducing the number of Sydney councils from 41 to between 15 and 18.

The report proposed combining the five inner-west councils that have signed this week's agreement, plus Strathfield, to form one council.

Such a council would have a population of 432,400 residents by 2031, it said.

In a joint statement the five inner west mayors  said on Wednesday the councils had agreed to undertake joint research on the economic and social impacts of mergers, and develop a shared community engagement program.

"We are doing all that has been asked of us by the state government in terms of talking to each other, assessing our credentials and talking to our community as best we can, with the limited information we have," they said.

The independent, Greens and Labor mayors also questioned the value of the inner west merger option set out in the panel's report and reiterated their opposition to forced amalgamation.

"We do not believe a super council will service the needs of our communities and there does not appear to be evidence that such a drastic change will bring cheaper rates and better services," they said.

Strathfield Council said it declined to sign the memorandum of understanding with its neighbouring councils because it had already completed its analysis "and will receive no value in financially contributing to a process that we have already undertaken".

"We are more than happy to meet with the inner west councils, as well as any other like-minded councils to share information regarding our opposition to any form of amalgamation, forced or voluntary," Strathfield Council said.

The panel's report also proposed a merger between Hunters Hill, Lane Cove, Mosman, North Sydney, Willoughby and part of Ryde – most of the councils set to meet on Thursday night.

Lane Cove opposes merging with other councils, but North Sydney's general manager Warwick Winn said it was still deciding.

Each council's final Fit for the Future submission lodged by the government's June deadline is expected to be assessed by an "independent expert panel" by October.