NSW Police said the marked police car was travelling under lights and sirens along Gibbons Street in Redfern, Sydney when it crashed about 1.30am on Friday.
The passenger in the car, a female constable, died instantly.
Paramedics treated the male constable who was driving before he was taken to hospital in a stable condition.
The NSW Police watchdog said it would monitor the force's investigation into the crash to "ensure public confidence".
The Law Enforcement Conduct Commission said it could not independently investigate the incident until NSW Police finishes its probe, and any coronial or criminal proceedings are over.
Premier Chris Minns and Police Minister Yasmin Catley said their thoughts were with the loved ones of the officer who died.
"Our police officers dedicate themselves to looking after others, and today the NSW Police family is mourning one of its own," Ms Catley said.
Mr Minns said he was also thinking of the officer injured in the crash and those who responded at the scene.
Opposition Leader Kelly Sloane said she was "heartbroken" by the news.
"(The officer) was out working while most of us were asleep, protecting the community," she said.
Nearby Regent Street remains closed in both directions between Lawson and Cleveland streets.
Motorists have been advised to avoid the area, with several bus routes being diverted.
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