The restrictions were introduced more than 20 years ago following a Rolling Stones concert, after local residents complained about noise.
An 11pm noise curfew will remain in place, with the exception of the Mardi Gras after-party event, should it be relocated in the future.
Premier Chris Minns said the change was a huge win for the NSW economy, and great for live music.
"For too long NSW has missed out on world-class acts because of an archaic restriction that killed fun in our city and hurt the economy," Mr Minns said.
"Sydney is Australia's only global city and now it will finally be able to host more global acts on the world stage."
Mr Minns flagged making the change early last year, and the move to follow-through comes after an eight-month community and stakeholder engagement process.
The changes will not impact sporting events, maximum venue capacity, or transport arrangements, according to the government.
The extra concerts at Allianz Stadium are expected to provide a $120 million annual economic boost. (Bianca De Marchi/AAP PHOTOS)
Sporting groups had previously flagged concerns that raising the cap would have them evicted and playing on damaged grounds.
Sport Minister Steve Kamper said the previous "red tape" had cost NSW hundreds of millions of dollars.
"By unlocking the stadium, we are also unlocking millions of dollars of economic activity for our local visitor economy and surrounding businesses," he said.
Of the 20 major events each year, two will be permitted to operate as 10-hour festivals, such as Wave Aid, between the hours of 10am and 11pm.
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