Existing legislation which makes it an offence to publicly threaten or incite violence based on a person's race, religion or sexual orientation is failing to act as a proper deterrent, the state government says.
Labor will introduce a bill to parliament on Tuesday seeking to remove a check on the criminal sanctions, which currently require approval from the Director of Public Prosecutions before a case is launched.
The proposed overhaul would enable NSW Police to prosecute the offence without further approval.
For individuals, the crime holds a maximum punishment of up to three years imprisonment and an $11,000 fine.
Premier Chris Minns said laws protecting groups from threats and incitement of violence need to have teeth.
"NSW is the most successful multicultural state in the world, but our community cannot take that for granted," he said.
"There is no room for threats and incitement of violence in NSW."
Two convictions under the laws were annulled after it was revealed police did not get permission from the DPP to launch the cases.
Michael Daley says the laws have to balance protection from vilification and freedom of speech.
A further two convictions remain under appeal in the High Court, according to the Attorney General's office.
Attorney General Michael Daley said the numbers, as well as feedback from police, showed the laws were no longer fit for purpose.
"We realise that it's a balancing act between the interests that the section seeks to protect in relation to vilification of hate ... and also freedom of speech," he said.
"These are important aspects for government to keep watch over. They've become ... more topical recently, since international tensions have raised domestic tensions here."
Mr Daley added the Director of Public Prosecutions does not oppose the changes.
"We're bringing this provision to the floor of the house this afternoon with no objection from the DPP," he said.
Executive director of the Australia, Israel and Jewish Affairs Council Colin Rubenstein welcomed the proposed changes.
"Sadly, there is currently profound apprehension and anxiety in the state's Jewish community, especially in light of the recent huge spike in antisemitism in NSW, Australia and around the world," he said.
"This is about sending a strong signal that if you engage in hate speech that you will be held to account and face prosecution."
The New South Wales Council for Civil Liberties opposed the changes when they were announced last week, advocating for education initiatives that deal with community tensions rather than the "blunt instrument of criminal law".
President Lydia Shelly said lowering the legal threshold for prosecutions will not make faith communities any safer from violence.
"Dragging people before the Courts will not make communities safer," she said.
"Instead, lowering the threshold will potentially have a chilling effect on public discourse."
The bill will be debated in parliament next week.
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