Australians who want to access such sites will have to contact their ISPs individually.
Under the plan, all ISPs will have to provide a "clean" feed to households and schools, free of pornography and other inappropriate material.
Family rights group, the Australian Christian Lobby, and various churches welcomed the proposal when it was first suggested by the previous government, led by former Prime Minister John Howard.
Assemblies of God national secretary Keith Ainge said the initiative would "assist parents in safeguarding their children".
The president of the Australian Catholic Bishops Conference, Archbishop Philip Wilson, said the move was "a great step forward in protecting families from the dangers of the web, including pornography, child sex predators and violence".
However civil libertarians have warned the freedom of the internet was at stake.
But Labour's Communications Minister Stephen Conroy said everything possible had to be done to shield children from violent and pornographic online material.
"We have always argued more needs to be done to protect children," he said.
"Labour makes no apologies to those that argue that any regulation on the internet is like going down the Chinese road," Conroy said.
"If people equate freedom of speech with watching child pornography, then the Rudd Labour Government is going to disagree."
Senator Conroy said the clean feed, also known as mandatory ISP filtering, would prevent users accessing prohibited content.
"We will work with the industry to get the best policy. (But) Labor is committed to introducing mandatory ISP filtering."
Senator Conroy said the Australian Communications and Media Authority would prepare a blacklist of unsuitable sites.
The new policy of mandatory ISP filtering comes on top of the former government's offer of free internet filtering software for home computers.
Family First Senator Steve Fielding, who has campaigned for ISP filtering, said his party would be watching the Government's policy on the issue very closely.
"Australian families want more (internet protection) and deserve more than they are currently getting, and this is a real test for the Rudd Government," he said.
A report by the Australia Institute in 2003 showed 84 per cent of boys and 60 per cent of girls using the internet had experienced unwanted exposure to sexual material.
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