The legislation passed in the NSW parliament on Wednesday after the government reintroduced a bill in October to outlaw the abusive conduct, as part of its response to a 2021 parliamentary inquiry.
Minister for Women Bronnie Taylor, Attorney-General Mark Speakman and Prevention of Domestic Violence Minister Natalie Ward announced the passage of the bill outside parliament.
"Today is a historic day for people in NSW," Mr Speakman said.
"NSW will be the first state or territory in the country to have standalone coercive control legislation.
"Today's the day we have passed a law to save lives in NSW," he said.
"We know that almost invariably coercive control is a precursor to intimate partner domestic violence homicide."
Coercive control is a form of domestic abuse where a person is denied autonomy and independence. It includes controlling someone's finances, communication and contact with family.
Under the laws, a conviction will carry a maximum seven-year sentence.
For a successful prosecution, it will have to be proved that someone engaged in repeated abusive behaviour, and that they intended to coerce or control.
The standalone offence applies to current or former partner relationships, but the laws will not not be retroactive.
There will be an implementation period of at least 14 months before the laws come into force, to allow time for training, resourcing, education and raise community awareness.
"Today is the day ... we passed a law to allow people in NSW, particularly women, to escape from domestic terrorism," Mr Speakman said.
"Commonly what is worse than the bruises or broken bones is the pattern of psychological, sexual, spiritual, financial, and other abuse that has them trapped in their own homes, trapped at the hands of someone who's meant to love them."
The government has said the reforms could help save lives, given the conduct often precedes partner homicides.
The bill faced opposition from some domestic violence advocates and MPs for not going far enough, and was being rushed through parliament before the March election.
Mr Speakman backed the law as measured and proportionate but conceded criminal justice was only part of the solution.
"We can't have a policeman in living room, in every bedroom around NSW."
Ms Ward described coercive control as a "red flag" behaviour, pointing to conduct like sending hundreds of texts in a day or putting a tracking device on a car.
"I'm proud we have said enough, it's a line in the sand that as a community we will not tolerate," she told reporters.
The government committed an extra $69.6 million in this year's budget to combat domestic violence, including minimising the trauma of legal proceedings.
Sydney MP Alex Greenwich, welcomed the new law following amendments he helped achieve.
"I was proud to support this historic reform," the Independent MP told AAP.
Domestic Violence NSW chief executive Delia Donovan praised the government for grappling with the "complex issue" but said it had missed a chance to enact more wholesale reform.
"We hoped for a broader scope of justice system reforms to ensure victim-survivors have access to justice as they deserve," Ms Donovan said in a statement.
"The bill criminalises a pattern of abusive behaviour in intimate partnerships only, with family violence, carer violence and other relationship types to be considered at a later stage."
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