The lower house of the NSW parliament overwhelmingly voted in favour of the sweeping changes on Monday night, including measures to limit protests, stem hate speech and crack down on gun ownership.
But in a split from coalition partners the Liberals, Nationals MPs voted against the combined bill due to concerns about the firearms changes, which cap the number of guns people can own to four and limit magazine capacities.
The measures follow the December 14 shooting at Bondi Beach, during which 15 people were killed and dozens injured by a father-and-son targeting a Hanukkah event.
The laws also face resistance from outside the halls of power with pro-Palestine groups gearing up for a constitutional challenge of laws that limit protests.
Under the planned changes, a terrorist attack designation would give police powers to reject protests for an initial 14 days and up to three months.
"These laws are being justified on the back of an outrageous and spurious campaign to try to blame the horrific Bondi attack on the millions of people in Australia who have marched against the genocide in Gaza," the Palestine Action Group said.
The group and allies are expected to lodge a court challenge in the coming days or weeks.
About 200 people attended a pro-Palestine rally in Sydney late on Monday to oppose the proposals.
Premier Chris Minns said on Monday the extraordinary measures were necessary to restore a sense of safety after the attack on Jewish residents.
"We can't pretend that the world is the same as it was before that terrorist incident on Sunday," he said.
"My government's number-one priority is to keep the people of NSW safe and that means making these changes."
The premier has directly linked pro-Palestine protests to the sowing of anti-Semitic rhetoric, which he said could develop into violence by "unleashing forces that the organisers of the protests can't control".
Monday's rally in central Sydney took place under a heavy police presence as attendees waved Palestinian flags and placards, including one that read "Globalise the Intifada, Intifada means uprising".
Mr Minns has pledged to ban the phrase "globalise the intifada" as part of a clampdown on slogans the government says are hateful.
Protest organiser Adam Adelpour, of activist group Stop The War on Palestine, said attendees gathered to "grieve in the wake of the horrific terrorist attack in Bondi, to stand in solidarity".
"We're also here to oppose the attempts to exploit this tragedy to attack our freedoms and silence criticism of Israel's crimes," he said.
Gunman Sajid Akram, 50, was shot dead by police at the scene, while his 24-year-old son Naveed Akram, who was also shot by police, has been charged with murder and terrorism offences.
He spent his first night behind bars on Monday after being released from hospital.
Authorities believe the pair were inspired by militant Sunni Muslim group Islamic State, with two flags bearing its insignia found in a car the two took to Bondi.
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