The dropping of teacher protections is among the changes to a wide-ranging LGBTQI anti-discrimination bill to ensure it can get moving through state parliament during the week.
Independent MP Alex Greenwich defended the compromise, saying urgently needed protections centred on the safety and dignity of transgender people, sex workers and rainbow families could become law.
"It breaks my heart that I've had to take out these reforms which I have worked on my entire political career," he told reporters on Monday.
"But in the interest of achieving what we can today, I have scaled back my bill to some of the priority areas for the safety, dignity and identity of the LGBT community."
The watered-down changes will still likely face bitter opposition from conservative MPs, forcing the coalition party room to adopt a position days out from three crucial by-elections.
But it has won the support of Labor premier Chris Minns, who will recommend state cabinet support the changes.
"Alex Greenwich's amended Equality Bill, I think, should pass the parliament," Mr Minns said.
The reforms still on the table include protections for intersex children from unnecessary medical intervention and a domestic violence offence for "outing" or threatening to "out" an LGBTQI partner.
People will also be permitted to change their gender on birth certificates without the need for surgery, mirroring measures already in place in most other states and territories.
The bill has won support from LGBTQI communities, progressive faith groups and the Australian Medical Association.
MP Alex Greenwich says compromise was necessary to ensure important protections gain momentum. (Bianca De Marchi/AAP PHOTOS)
Equality Australia said it was an opportunity to remove the "archaic, cruel and discriminatory laws" that impacted LGBTQI people every day.
"NSW has some of the worst laws when it comes to discrimination and disadvantage experienced by LGBTQI+ communities," chief executive Anna Brown said.
"The Equality Bill will change this."
But the union representing private-school teachers was disappointed its members would continue to be subject to discrimination on the basis of sex, disability, sexual orientation, transgender identity or marital or domestic status.
"Such treatment is unwelcome in schools and would be unlawful in every other industry," Independent Education Union state secretary Carol Matthews said.
Mr Greenwich said it had become clear in recent months that Labor was unwilling at this stage to remove the exemption for private schools in the state's anti-discrimination act.
That could change, with a comprehensive review of the act completed by the NSW Law Reform Commission in February.
"Once they make those recommendations, the government and no member of parliament will be able to hide from them," Mr Greenwich said.
Heike Fabig spoke of how the changes would have helped her late transgender son Bodhi Boele. (Bianca De Marchi/AAP PHOTOS)
Heike Fabig said the ability to change birth certificates would matter to people like her late son Bodhi Boele, who died in May aged 18. He was heartbroken the letter "f" remained under his gender.
A degenerative condition meant genital surgery, as required by NSW to change the document, would have killed him.
"In his dying days, he was incredibly petrified that his death certificate would also list him as female," his mother said.
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