The reforms, approved by parliament late Thursday night, will create an independent environmental regulator and stricter rules for land clearing -- a leading cause of native animal extinctions.
The sweeping changes also create legally enforceable rules protecting endangered wildlife and ensuring ecologically sustainable development.
Previous environmental laws were passed 25 years ago and were widely acknowledged as no longer fit for purpose. Official assessments have found the 2000 act had failed at its main goal of conserving the environment and protecting endangered species.
The new laws were passed by the ruling Labor Party after weeks of tense backdoor negotiations with the Greens, who said they had secured "significant wins to protect forests".
Under the legislation, large emitting projects must disclose their greenhouse gas emissions and are required to provide emission reduction plans.
"We are heralding in a new era for the environment and productivity in Australia," Australian Prime Minister Anthony Albanese told reporters in the capital Canberra.
The new laws would "protect the environment for this and future generations", he said.
Vast Australia is one of the world's most biodiverse countries, but 100 endemic species have become extinct since colonisation, official data shows.
It has also lost more mammal species to extinction than any other continent.
The country is also highly vulnerable to climate change.
A landmark climate impact report released by the government in September warned that rising oceans and flooding caused by climate change will threaten the homes and livelihoods of more than a million Australians by 2050, while deaths from heat-related illness will soar.
Amanda McKenzie, head of the Climate Council NGO, expressed concern that the laws did not require the government to consider a project's climate pollution when assessing whether to greenlight it.
"That is a gaping hole in a law that should protect nature from the ravages of climate change," she said.
Despite heavy investment in the renewable sector, Australia remains heavily dependent on its fossil fuel economy for growth.
It is the world's second-largest coal exporter, holds the third-largest coal reserves and continues to channel billions of dollars in public subsidies to fossil fuels.
Iron ore, extracted through emissions-intensive mining, remains its most valuable export.
Current policies put it on track to miss its target to slash greenhouse gas emissions by 62 to 70 percent by 2035, Canberra said Thursday.
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