It believes it will have a chance to push some amendments next year, after the bill has already become law. However, the problem here is, like most security experts have argued from the beginning, any encryption backdoor or method that allows a third-party to access communications between two users is by definition a "systemic weakness" that could be abused by malicious parties.
Australian authorities can also require that those demands be kept secret.
Earlier in the week, the bill, with some amendments, appeared to have enough support to be passed.
"But the fundamental fact remains that the powers being sought by law enforcement are ill-informed, badly drafted and a gross overreach", it said in a statement.
The government's Senate leader, Mathias Cormann, said the government had indeed agreed to revisit the issue in the new year.
Thursday's parliamentary decision in Australia is the most serious attempt by any national parliament to date to rein in tech companies involuntarily.
Under the bill, companies that fail to hand over data linked to suspected illegal activities would face a fine of as much as 10 million Australian dollars ($7.3m) while individuals could face a prison sentence.
The Five Eyes intelligence network, made up of the US, Canada, Britain, Australia and New Zealand, have each repeatedly warned national security was at risk because authorities were unable to monitor the communications of suspects.
The Digital Industry Group Inc (DIGI), whose members include Facebook, Apple, Google, Amazon and Twitter, said in a statement that the Australian legislation was "out of step" with other countries that had strong national security concerns.
Brushing off the warnings from tech giants that the laws would undermine internet security, he said they would be similar to traditional telecommunications intercepts, just updated to take in modern technologies.
Security experts are nearly unanimously against backdoors, precisely because of this weakening. If secure servers and end-to-end encryption are on your email wish list, we have you covered. They are also concerned about how the law's secrecy provisions will impact their business models and consumer privacy.