The new step is being introduced in the country's most populous state next week under which the police would be given sweeping powers to demand removal of any face covering, including helmets, masks and religious veils, for making identification.
Penalties for those who refuse would include fines ranging from 220 Australian dollars to a year in jail, ABC reported.
But the State Premier Barry O'Farrell said the people objecting would be given option of getting identified privately.
The change in laws has been prompted by the case of a Sydney woman Carnita Matthews, who won a case against a policeman for forcibly remove her burqa.
The magistrate gave her the benefit of doubt as police had been unable to see the face of the woman who made the accusation as she was donning a burqa.
Previously police only had the power to demand the removal of face coverings during the investigation of serious offences.
A law banning women from wearing veils that cover their faces in public is also in force in European countries like France, Belgium, Italy and parts of Spain.