Transformational leadership has two salient characteristics: intellectual stimulation and individualized consideration. Recent studies in this area reveal that the effect of such leadership characteristics on job performance is indirectly affected by empowerment. The nature of this relationship is interesting, but little is known about the mediating effect of empowerment in leadership management models. Therefore, this study was conducted to measure the effect of transformational leadership characteristics and empowerment on service quality by using 110 usable questionnaires gathered from employees working in a city based local authority (CBLAUTHORITY) in Sarawak, Malaysia. Outcomes of a stepwise regression analysis showed that the relationship between empowerment and selected transformational leadership characteristics (i.e. intellectual stimulation and individualized consideration) is positively and significantly correlated with service quality. The result confirms that empowerment does act as a full mediating variable in the leadership model of the organization under study. This paper also discusses implications and limitations, as well as directions for future research.