The state Attorney-General says the existing laws make it too difficult to prosecute people who preach violence.
New South Wales Attorney-General Gabrielle Upton has ordered a review of Section 20-D of the Anti-Discrimination Act.
That is the section that deals with racial vilification.
Ms Upton says the section has been in place for a long time but there have been no prosecutions.
"We're going to look at the racial vilification laws. They're in an act which has, for 20 years, been sitting there. And I have, since I became attorney-general six months ago, heard concerns from the community that the laws just don't work."
The section makes it an offence to incite hatred towards, serious contempt for, or severe ridicule of a person or group of persons on the grounds of the person's race.
A parliamentary inquiry examined the section in 2013.
It found a number of procedural matters hindered the effectiveness of the section, including the time in which a person could lodge a complaint.
Ms Upton says recent events, including the shooting of police accountant Curtis Cheng in Sydney's suburban Parramatta, have highlighted a need for change.
"We know that, out of the Parramatta shooting, there's a heightened level of concern. But make no mistake, this is something that this Government was doing, was working towards. We will embrace the recommendations from the parliamentary committee. Not only that, but we're asking for more input to make these laws better."
Ms Upton says a wide-ranging consultation process will work to alleviate the issues and get new laws before parliament by next year.
"It's not only the Jewish community that's concerned. It's the Chinese community, it's the Korean community who say that, 'We are a part of the Australian society. We're a part of New South Wales. We don't feel protected by these laws. Please look at making them have more teeth (more effect).'"
Vic Alhadeff is chief executive officer of the New South Wales Jewish Board of Deputies.
Mr Alhadeff says he welcomes the decision to overhaul the laws and says it has been a long time coming.
"When Australians are targeted in hate speeches which put them at risk and nothing can be done about it, then you know the law is broken. Today's announcement takes us significantly closer to fixing that situation."
He says Australians are living in a changing landscape and the law needs to adapt.
"We are definitely living in a changing landscape. We live in an environment in which young children can be incited to violence by clicking on a screen. That means there are far more people out there who are able to incite violence or hatred against an individual on the basis of their identity. So the law needs to respond appropriately."
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