Under the agreement, ratios of at least one nurse to three patients would be introduced for emergency departments and maternity wards, followed by similar requirements across much of the public hospital system.
The state government announced on Thursday it had signed a memorandum of understanding with the NSW Nurses and Midwives Association to introduce the changes.
Building on pre-election commitments by the government, a "good faith" process has been set out, including a time frame to enshrine the staffing levels in the relevant employee awards.
But the deal falls short of legislating for nurse-to-patient ratios on wards, which Premier Chris Minns said would get in the way of his government's effort to improve pay and conditions for health workers.
"We've believed always that as part of our model to deliver world-class pay and conditions to frontline public sector workers, it did need to be done in an interest-based bargaining agreement - that's through the award process," he said.
The government has committed to introducing ratios across EDs, ICUs and maternity wards within its first term, as well as hiring an additional 1200 new nurses within the same period.
The union has repeatedly called for enshrined nurse-to-patient ratios, which it says will reduce wait times and improve patient outcomes, as well as take pressure off staff.
General secretary Shaye Candish said the latest agreement was reassurance for nurses and midwives but was only a step in wider reform the union and its members were fighting for.
"Implementation of the safe-staffing policy can continue in earnest and we intend to maintain pressure on the government to invest further in the workforce until all specialty areas have safe staffing ratios across the system," she said.
Health Minister Ryan Park said the state's 58,000 nurses and midwives were the backbone of the health system and needed to be retained.
"When I do my weekly unannounced visits, every single week without fail the first thing someone talks to me about is adequately staffing our hospitals and our wards and shifts," he said.
"(This is) a reform that is absolutely essential if we are going to keep nurses, midwives and health care professionals in our system."
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