Maximum penalties for the most serious offences will double to $10 million for companies, while a new specific fine will apply to dumping on schools, beaches and other sensitive land.
The crackdown comes after fragments of bonded asbestos were detected in mulch at the recently opened Rozelle Parklands in January.
Similar asbestos-tainted mulch has since been found at 75 other sites, including parks and schools.
"We need to drive out the dodgy operators who are doing the wrong thing by the environment and the wrong thing by people's wellbeing," Environment Minister Penny Sharpe said on Thursday.
The asbestos-mulch saga had exposed gaps in the state's regulations and the powers of the Environmental Protection Authority (EPA), she said.
"These sweeping reforms will directly improve the protection of human health, the environment and the community," she said.
A number of Sydney parks were fenced off in February due to the asbestos scandal. (Dan Himbrechts/AAP PHOTOS)
Most environmental penalties in NSW - including for serious offences - have not increased since 2005.
Maximum penalties for wilful waste disposal that harms the environment will double to $10 million for companies and $2 million for individuals.
Asbestos-related penalties will jump to $4 million for companies and $1 million for individuals.
On-the-spot fines for general littering will increase to $160, while illegal dumping will attract $50,000 fines for companies and $25,000 for individuals.
The laws will also establish a "name and shame" process relating to poor environmental practices and introduce product recall powers for materials that might be contaminated with harmful substances.
Surfers and beach users have been major opponents of seabed mining off Sydney. (Bianca De Marchi/AAP PHOTOS)
Ms Sharpe said the crackdown would be the biggest boost to environmental regulation since the Environmental Protection Authority was created in 1991.
Greens MP Sue Higginson said NSW had a low bar when it came to what polluters could get away with and doubling fines was a good place to start.
The offshore environment will also be protected under Australian-first laws to ban seabed petroleum and mining in NSW waters after legislation passed parliament on Thursday afternoon.
The government bill, resembling one earlier introduced by the state opposition, effectively thwarts projects in the PEP-11 zone in the deep sea commonwealth waters off Sydney and Newcastle.
The law bans onshore developments capable of receiving undersea resources.
"There is no place for harmful sea-bed mining in our state," Ms Sharpe told parliament.
Opposition MP Scott Farlow said residents overwhelmingly did not want to see offshore drilling in state waters.
Meanwhile, attempts to exorcise the ghost of former state Nationals leader John Barilaro were made by protesters outside parliament in the morning.
A Ghostbusters-themed flash mob urged the Minns government to ditch a Barilaro-era coal strategic statement that guides how new coal projects are assessed in NSW.
Natural Resources Minister Courtney Houssos indicated during the previous week that there were no immediate plans to remove the policy.
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