The changes,in legislation to be introduced to Parliament by Mr Piccoli on Wednesday,follow revelations about the use of state government funds by Australia's largest muslim school,Malek Fahd.
The Greenacre-based Islamic school was found by education authorities to be operating for profit between 2010-12.
Mr Piccoli subsequently ordered Malek Fahd to repay $8.5 million in NSW government funds - a decision being appealed in the Supreme Court.
Since 2006,independent schools who receive state government funding must operate on a not-for-profit basis. For-profit schools can operate in NSW but are ineligible for public funding.
Under changes to the Education Act,a"not-for-profit advisory committee"will be established with representatives of independent schools,while a stricter definition of"for profit"will be applied.
The act will stipulate that all purchases and payments must be at reasonable market rates and necessary to run the school.
While Mr Piccoli may currently declare a school is"for-profit"and end public funding,the new legislation gives him"graduated"powers.