The legislation was passed by the NSW parliament on Thursday night, making it one of the first states to adopt the new system.
The system will apply to doctors, nurses, optometrists, midwives, chiropractors, pharmacists, psychologists, physiotherapists, podiatrists and dentists.
NSW Health Minister Carmel Tebbutt said the new laws were a "significant step" that would give the public increased confidence in the health system.
The Health Practitioner Regulation Bill 2009 would also make it easier to avoid "appalling" situations where practitioners had gained employment in other states after they had been deregistered or suspended, she said.
"Once enacted across the country, these laws will mean greater consistency and ensure that uniform processes are in place for registering practitioners and accrediting educational programs."
There is already an expectation that NSW doctors will report colleagues who they fear are putting patients at risk, but the rule will now be applied to a wider range of health practitioners.
Tebbutt says NSW will keep its independent investigator and prosecutor, the Health Care Complaints Commission.
Comment was being sought from NSW Health and the Australian Medical Association.
Source: AAP NewsWire