The coalition government's Māori wards bill has passed its third reading in Parliament on Tuesday.
It will require councils that brought in Māori wards without polling residents to hold one, or scrap the ones they had set up.
The Local Government (Māori Wards) Amendment Bill came out of a commitment in the coalition agreements with both ACT and NZ First.
Councils that established Māori wards without a referendum will have to hold a binding poll alongside the 2025 local body elections.
Speaking in Parliament, Minister of Local Government Simeon Brown said "divisive changes" were introduced by the previous Labour government that "denied" local communities the ability to determine whether to establish local Māori wards in their communities.
"They took away the voices of local communities across the country and undermined the principles of democracy," he said.
"Today is a great day for local democracy."
Brown noted that the Helen Clark government put the policy in place giving rights to local communities and the coalition government was reinstating it.
But Labour Party leader Chris Hipkins slammed the bill saying the coalition government was "embarrassing" New Zealand.
"Once again Māori are being singled out by this government for discriminatory treatment.
"This is a government that is determined to "other" Māori within their own country. They see Māori as a people to be put back in their place."
Hipkins said the bill was another example of the government seeking to "divide" Māori and non-Māori New Zealanders, in a way that "we have not seen in this country for a generation".
Te Pāti Māori MP Mariameno Kapa-Kingi also spoke strongly against the bill saying the coalition government was masking the removal of Māori wards behind the "absolute lie that is democracy in this country".
"I want them to know that we see you ... we Māori see you. We know what you are doing, and just understand this: we are ready.
"The removal of Māori wards is merely another open invite to racists across this whenua to the open season against te Iwi Māori."
Labour, the Greens and Te Pāti Māori voted against the bill.