Unions and business lobby groups will be able to spend up to $1.1 million on political advertising for next year's NSW election after the Baird government backed down on a proposal that would have slashed the amount to $250,000.

In election funding laws that passed the NSW Parliament late on Tuesday night, the government has also ditched a proposal that would have cut the amount of taxpayer funding smaller parties can claim if they don't get a member elected to the Legislative Assembly, or lower house.

Instigator: Premier Mike Baird proposed the law changes. Credit:Dominic Lorrimer

The Parliament has also voted to hand political parties potentially millions of dollars in extra taxpayer funds for administrative purposes.

But Labor and the Coalition rejected a Greens proposal to lower the $5000 cap on political donations for parties and $2000 for individual candidates to $1500 and $500.