The state government approved the move late Monday after the recent case of a Muslim woman who was acquitted when a judge decided she could not be identified because was wearing a burqa.
"I don't care whether a person is wearing a motorcycle helmet, a burqa, niqab, face veil or anything else, the police should be allowed to require those people to make their identification clear," Premier Barry O'Farrell said.
The move follows the high-profile case of of Carnita Matthews, who in November 2010 was sentenced to six months jail for falsely accusing police of forcibly trying to remove her burqa when she was stopped for a traffic offence.
Her sentence was quashed last month when a magistrate said he could not be 100 percent sure it was Matthews who made the complaint because officers were not able to see the face of the accuser.
New South Wales state Police Commissioner Andrew Scipione demanded a clarification of the law and O'Farrell said the new powers should help prevent a recurrence of such cases in the future.
"I have every respect for various religions and beliefs but when it comes to enforcing the law the police should be given adequate powers to make a clear identification," said O'Farrell.
Police previously had the power to ask women to remove face veils during the investigation of serious offences, but not on more routine matters.
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