Described as a National Facial Biometric Matching Capability
by the Australian government, it will allow law enforcement to access "passport, visa, citizenship and driver license images" to identify people of interest.
The leaders of every Australian state and territory agreed to the changes at a special meeting in Canberra on Thursday morning.
If enacted, it could affect approximately 19 million Australians over the age of 16 -- the age when young people qualify for a learners driving license.
"Imagine the power of being able to identify, to be looking out for and identify a person suspected of being involved in terrorist activities, walking into an airport, walking into a sporting stadium," Prime Minister Malcolm Turnbull told reporters Wednesday.
In the United States, the Federal Bureau of the Investigation already has a massive facial recognition database
of more than 400 million photos, including state drivers licenses.
But advocacy group Australian Privacy Foundation chair David Vaile said the proposal was an invasion of privacy and an invitation for hackers and identity thieves.
Drivers license images as well as passport and visa photos can already be accessed by Australian law enforcement agencies, but the new system would automate the process in one location.
"We (have) set aside all of our traditional protections and benefits of being part of the rule of law, Western community, and adopted the sort of dangerous authoritarian practices that are more typical of military dictatorships and police states," Vaile told CNN.
In a statement put out after the measure was approved, state and territory leaders promised to maintain "robust privacy safeguards."
A sophisticated plan to blow up an airplane flying out of Sydney
was foiled in July by Australian investigators and anti-terrorism authorities.
Five Australians have died as a result of domestic terrorism in the past two decades, fewer than died at the hands of police and due to domestic violence, according to local media.
'A honey pot'
The announcement on Wednesday prominently focused on the databases' use to fight terrorism but Vaile said it could be easily expanded to other criminal investigations, including minor offenses.
"What we're talking about here is the very present risk of scope creep, something starts out targeted at one (type of crime) but then it gets expanded to be used for another," he said.
Not only that, but according to the Vaile the large amount of valuable information accumulated in one place was likely to attract criminal activity.
"Once you've got that honey pot you attract flies, you attract hackers, you attract spies and criminals. This information is absolutely, critically useful for identity fraud," he said.
In the 1980s there was a push by Australia's then-Labor government under Prime Minister Bob Hawke to introduce a mandatory identification card, called the Australia Card. It was finally abandoned in 1987, partly due to concerns over privacy.
Speaking at the press conference where the new measure was announced Wednesday, Minister for Justice Michael Keenan admitted the database could be hacked.
"All data that exists online, there is a possibility that it could be hacked. But the point is, we have a comprehensive National Cyber Security Strategy to make sure that information ... is held in a safe way," he said.
When questioned over privacy and cybersecurity concerns on Wednesday, Turnbull said there was already "a lot of data out there."
"I don't know if you've checked your Facebook page lately, but people put an enormous amount of their own data up in the public domain already," he told reporters.
The facial recognition program will be rolled out by 2018 in some Australian states, according to Keenan.