The tougher bail laws will make it harder for older children to be released if charged for certain serious offences while similar charges are pending.
The legislation was passed late on Thursday night before MPs sat into Friday morning to pass a long-sought-after ban on gay conversion therapy.
While youth crime has been trending down for the past 15 years, recent violent break-ins in regional areas have ignited community demands for action.
Premier Chris Minns said the last things the government wanted to do was lock up children, but that there was a "massive issue" in regional areas that needed action.
"I think it's the right decision," he told Sydney radio  2GB.
"Something needed to change and we listened to regional communities in particular."
The bail laws expire after a year while a new criminal offence has been created to stamp out so-called posting and boasting on social media about car thefts or break-ins.
Mr Minns last week said there was strong circumstantial evidence from police exhibition-like behaviour was encouraging further and repeated criminal behaviour.
But the bail changes were panned by progressive MPs as "abhorrent and racist", "wicked" and "grossly conceived" while legal experts say they are a "devastating betrayal of Aboriginal children".
Outspoken Labor backbencher and former NSW Council for Civil Liberties president Cameron Murphy said he was bound to vote with his party's position, against his personal objections.
Evidence showed incarceration did not lead to improvements in community safety, he said.
"We in Labor are committed to closing the gap," Mr Murphy said.
"This bill - even though designed with the best of intentions and coupled with large new spending on support services - will ultimately send more Indigenous kids to jail."
But another Labor MP, former Aboriginal Legal Service solicitor Stephen Lawrence, emphasised the law expired after a year and was responding to a recent sharp rise in crime in some areas.
Independent Mark Latham said the laws were necessary to protect victims.
But he said more focus was needed to address why many children roamed the streets at night - being unsafe at home due to the threat of sexual assault.
The Nationals backed the bill while calling out the "dire need" for genuine community engagement and a long-term strategy to address regional crime.
Their repeated calls for an inquiry into regional crime finally won government support on Wednesday when a parliamentary inquiry was called.
Meanwhile, NSW has now joined Queensland and Victoria in banning gay conversion therapy, after a bill was passed in the upper house after 6.30am on Friday.
NSW wakes up a safer place for LGBTQIA+ people with the passage of the Conversion Practices Ban Bill ���⚧����🌈 — Alex Greenwich MP (@AlexGreenwich) pic.twitter.com/zXhr829TpQMarch 21, 2024
A new criminal offence of delivering a conversion practice will now carry a penalty of up to five years in jail.
Religious leaders will still be able to tell a group that their faith believes being homosexual or queer is wrong, but directing any acts to change a person's sexuality or gender identity could result in arrest.
"I'm grateful to the Minns Labor Government for delivering a prohibition on LGBTQ conversion practices, and working with me and so many stakeholders to get the balance right on this historic legislation," Independent Sydney MP Alex Greenwich said  in a statement on Friday.
Faith communities have been broadly supportive of the bill, although Christian Schools Australia has aired concerns about the civil scheme leading to activist litigation against religious beliefs.
Newcastle Anglican Bishop Peter Stuart said the state would now be a safer place for LGBTQI people.
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