Australia\'s upper house passed a controversial pollution tax Tuesday in what the government called a "history-making vote", after years of bitter debate which felled a sitting prime minister.

File photo of the Hazelwood power station east of Melbourne.

Cheers and applause broke out as the Senate approved the Clean Energy Act by 36 votes to 32, requiring Australia\'s coal-fired power stations and other major emitters to "pay to pollute" from July 1 next year.

Prime Minister Julia Gillard said it was a "major milestone in Australia\'s efforts to cut carbon pollution and seize the economic and job opportunities of the future."

"This history-making vote turns years of discussion into a reality," Gillard said in a statement.

The unamended laws -- 18 in total -- will now be sent to the Governor General for approval. The lower house last month voted for the measure 74 to 72.

Tuesday\'s vote caps a tumultuous period in Australian politics, largely centred on how the vast nation, one of the world\'s worst per capita polluters, should tackle carbon emissions linked to global warming.

Former prime minister Kevin Rudd harnessed an unprecedented wave of popular support for climate change action, winning the 2007 election in a landslide after campaigning to ratify the Kyoto Protocol and take other green measures.

But Rudd\'s plans were frustrated by entrenched conservative opposition which led to him shelving a proposed emissions trading scheme, damaging his credibility. He was ousted by Gillard in a Labor party-room coup in 2010.

Gillard went to an election promising there would be no carbon tax, but later backflipped, saying it was necessary to introduce one as the first step towards a flexible carbon pricing scheme.

Thousands of people have attended rallies against the levy which they argued will raise living costs, cut jobs and, ultimately, be ineffective at a global level.

Delivering Labor\'s final speech urging senators to pass the legislation, Finance Minister Penny Wong acknowledged: "It\'s been a long path to this day."

"I feel enormously moved today, because it\'s one of those days where you realise that parliamentarians can do the right thing for the country, even when it\'s not easy," she said after the vote.

But the conservative Liberal/National opposition described it as a "sad day" for the nation and warned the cost of the tax would be passed onto mortgage-laden Australians who could ill afford it.

The levy, which will place a fixed price of Aus$23 (US$23.80) per tonne on carbon pollution for the first three years before shifting to a market-based trading scheme, aims to cut emissions by 80 percent of 2000 levels by 2050.

The Business Council of Australia (BCA), representing CEOs from 100 of the nation\'s top companies, said the tax was harsh by international standards, with comparative prices in Europe recently slipping to Aus$8.70 per tonne.

But Climate Change Minister Greg Combet said the European carbon market was trading near Canberra\'s $23/tonne starting prices just a few months ago and "we\'ve just got to take a bit of a longer-term view of this".

"I\'d certainly hope and anticipate that in the next three years the crisis in Europe is overcome and markets stabilise and recover," Combet said.