Child sexual abuse survivors will be able to launch fresh lawsuits against churches and schools that forced them into unfair settlements under new laws passed in Queensland, the first of their kind in Australia.

The state parliament’s move to abolish the 21-year age limit on sexual abuse claimants was extended with an 11th hour amendment on Tuesday night, allowing courts to set aside past secret settlements by institutions that used the age limit to negotiate lower payouts.

Advocates hailed the legislation around past settlements as a pioneering victory in a longstanding battle for justice, saying it should be adopted for victims in all Australian jurisdictions.

It was won despite the opposition of the Palaszczuk government, which had cited “unintended consequences”.

The amendment to allow the setting aside of past settlements was put forward by the Liberal National opposition and passed with the support of the crossbench.

Advocates credited an original push by independent MP Rob Pyne through a private member’s bill as the catalyst on the issue, with the LNP backing some of his reforms.

The attorney general, Yvette D’Ath, said it “set a significant precedent, that a parliament is willing to give the courts the very wide discretion to reopen and void deeds”.

“My concern is that institutions may not want to enter into settlements into the future if they believe that those deeds are not going to be full and final settlement, that in fact the courts can at any time in the future reopen those based on a parliament already showing once that they are willing to reopen,” she told parliament.

One advocate and survivor, who asked not to be named, said clearing the way for past settlements to be set aside represented “an amazing win: an Australia-first”.

But other survivors would be bitterly disappointed with parliament’s refusal to extend the new laws to non-sexual, serious physical abuse, as had already been done in New South Wales, he said.

Allan Allaway, an advocate named by the premier, Annastacia Palaszczuk, as a longstanding friend and inspiration for the reforms, is one of those survivors of severe physical abuse whose case has been left outside the reform.

Allaway told the Guardian on Monday he was “livid” that victims of physical and psychological abuse in institutions would not be given the benefit of the new scope to seek justice.

The government later indicated on Tuesday it was willing to extend the definition of abuse to serious physical abuse. But the opposition did not support the move, arguing sexual abuse should be treated differently to physical assault because of the length of time it took sexual abuse survivors to come to terms with their treatment.

Queensland’s statute of limitations on compensation claims for child sexual abuse has been used by institutions to limit out-of-court payouts to thousands of dollars, far less than those awarded by a court.

In one case, a Brisbane Grammar schoolboy victim of paedophile Kevin Lynch, whose abuse was so severe he suffered organic brain damage, was given $45,000 plus costs – less than two years’ school fees – in compensation.

Bill Potts, the president of the Queensland Law Society, said the removal of the age limit on sexual abuse claims would “go a long way to healing decades of injustice and suffering”.

“This is not about money, but rather acknowledging the life-long pain and suffering of child abuse victims and providing just compensation so they can receive counselling and the help they need as a result of the betrayal suffered in their youth.”

