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Wallace will partner Test five eighth Greg Bird at ANZ Stadium on May 21 with odds on favourite Gidley ruled out Tuesday morning after suffering a fractured cheekbone for Newcastle in Monday night's 18-4 NRL loss to Melbourne at Olympic Park.
It opened the door for 22-year-old Wallace to make his debut for the Blues, beating off established halfbacks including Parramatta's Brett Finch, Manly's Matt Orford and Newcastle's Jarrod Mullen for the position.
Wallace has been a revelation since joining the Broncos from Penrith in the off season, helping to lead Brisbane into the top four while skipper Darren Lockyer battled with a knee injury.
Sydney Roosters captain Craig Fitzgibbon is the other surprise selection, the 30-year-old backrower earning a recall to the Blues on the interchange bench after missing out for the past two seasons.
"Eighteen months ago everyone thought he had lost his legs but he has found them again and it's a deserved spot for him," said new NSW coach Craig Bellamy.
"Obviously he is experienced in big games which will be good for us, and he is a goalkicker as well."
Gold Coast forward Anthony Laffranchi won a deserved State of Origin debut jersey after narrowly missing out on an Australian Test jumper for the Centenary Test last week, named alongside Fitzgibbon on the interchange bench with Anthony Tupou and Dragons utility Ben Hornby.
NSW selectors made nine changes to the side which won the final game of last year's series with incumbents Gidley, Nathan Hindmarsh, Andrew Ryan, Steve Simpson, Matt King, Jamie Lyon, Brett Kimmorley, Brent Kite and Luke Bailey all missing from Bellamy's 2008 team.
Former Melbourne star King was considered ineligible as he is now playing in the UK Super League, while Gidley (cheekbone), Simpson (knee) and Bailey (wrist) missed out due to injury.
Manly prop Kite is the most controversial omission, dropped from the NSW side despite a strong performance for the Kangaroos in last week's Centenary Test win over the Kiwis.
"Brent played for Australia three or four days ago, he was in our discussions for a long time but this is a team we think will do the best job in the way we want to play the game," said Bellamy.
NSW team for Origin I: Brett Stewart, Jarryd Hayne, Mark Gasnier, Matt Cooper, Anthony Quinn, Greg Bird, Peter Wallace, Brett White, Danny Buderus, Ben Cross, Ryan Hoffman, Willie Mason, Paul Gallen Interchange: Anthony Laffranchi, Anthony Tupou, Craig Fitzgibbon, Ben Hornby