The government has shelved a bill to allow pubs and clubs to use facial recognition technology to identify and exclude problem gamblers or suspected criminals, The Sydney Morning Herald reported on Tuesday.
It came after crossbench MPs threatened to move amendments to create a mandatory cashless gaming card.
"This bill was ill-considered and dangerous and it's a huge relief that it's off the table," Greens MP and gambling harm reduction spokeswoman Cate Faehrmann said.
"But it's disgraceful that it was put forward by the government in the first place."
The NSW Crime Commission inquiry into money laundering on pokie machines report, released last week, recommended introducing a cashless system to crack down on crime.
The investigation reported washing money through tens of thousands of machines in NSW was an inefficient but not widespread way of cleaning criminal proceeds.
It also revealed other suspected crimes such as tax evasion, which was outside the scope of its inquiry.
Criminals gamble their illicit proceeds, which is illegal but not money laundering, and some venues don't do enough to stop it happening, the commission reported.
As well as preventing money laundering and criminal cash going into machines, mandatory cashless gaming cards would provide harm reduction benefits for problem gamblers.
Independent Sydney MP Alex Greenwich says NSW is the gambling harm capital of the world, with billions flowing through the machines representing people's lost life savings.
"This has to stop and the crossbench will take the lead," Mr Greenwich said on Sunday via social media.
Premier Dominic Perrottet and Opposition Leader Chris Minns have not committed to cashless gaming but have pledged to work with the industry.
ClubsNSW and the Australian Hotels Association support facial recognition technology but strongly oppose mandatory cashless gaming.
Plans for cashless gaming announced by then customer service minister Victor Dominello in 2020 were shelved when he lost the portfolio.
Ms Faehrmann says the gaming industry has too much influence on the major parties which benefit from donations.
"The fact that the clubs industry said 'jump' and the government and the opposition said 'how high' shows just how much the gambling industry has the major parties under its thumb," she said.
The NSW government is in minority in the lower house and does not control the upper house.
The success of the Greens and independents at the federal election would enhance the power of the crossbench if repeated in NSW in March.
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