Local councils will be given the ability to cut off utilities for a place of public worship operating without the necessary planning approval in NSW.
Failure to do so will result in fines for individuals jumping tenfold from $11,000 to $110,000, while corporations can be slapped with a maximum $220,000 penalty.
The reforms, to be introduced in parliament in the next six to 12 months, were necessary to keep the community safe after the Bondi massacre where 15 people were killed, NSW Premier Chris Minns said.
"We need to fight hate speech where we see it in our communities, but also where we don't see it behind closed doors," he told reporters on Monday.
"I'm just sick of a situation where we can't even close down an illegally operating prayer hall where you should be seeking approval (from council) as does every other business, organisation and corporation."
The two gunmen, a father and a son, targeted a Jewish Hanukkah celebration in an Islamic State-inspired terror attack.
One of the men had links to extremist Islamist preacher Wissam Haddad.
His centre, Al Madina Dawah, was shut down by Canterbury-Bankstown council in December after it was found operating from a decades-old building never permitted for use as a religious centre.
The council previously booted Mr Haddad from another premises which was only approved to operate as a gym.
The premier said the latest powers are aimed at protecting social cohesion and stamping out divisive rhetoric and religious extremism.
The new laws would not discriminate between groups, amid a focus on Islamist extremism in the wake of the Bondi attack.
"People will be arrested and charged for hate speech regardless of who it applies to," Mr Minns said.
"That applies equally for a young woman that might be wearing a scarf in a suburban street in Sydney, as it applies to an Orthodox Jewish man in Bondi."
NSW Police and the planning department will support councils in enforcing the closure of prayer halls found in breach of the new state laws.
Councils will also be required to consult with NSW Police on community safety matters before approving new places of public worship.
But the proposed laws do nothing to stop the root cause of anti-Semitic hate speech and only burden councils with taking on terrorism without proper resources, the state opposition says.
"Councils deal with rates, rubbish, stray dogs and apparently, now terrorism," acting opposition leader Natalie Ward told reporters.
"There is not a comprehensive plan by this government to deal with hate speech and indeed prevent it."
The changes come as federal parliament is recalled before Australia Day, with Prime Minister Anthony Albanese promising to expand hate laws to tackle extremist speech.
These include aggravated hate speech offences for preachers and leaders who promote violence, and listing centres and groups engaging in racial hatred.
Three sermons by Mr Haddad in late 2023 contained "devastatingly offensive" imputations that were based on the race or ethnicity of the Australian Jewish community, the Federal Court ruled in July.
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