The national Labor conference voted to develop a system for the registration and recognition of same-sex relationships, after gay rights advocates failed to gather enough numbers for a resolution to legalise gay marriage.
But frontbencher Anthony Albanese told delegates while it was not his "ideal position", the watered-down resolution was an important reflection of shifting public attitudes.
"History is moving forward on these issues," said Albanese, presenting the motion for vote.
"When I first proposed equality for same-sex couples in superannuation in 1997 that was a controversial issue. Today that is an issue of consensus."
"I believe that the issue of equality for all is something that is unstoppable," he added, prompting wild applause.
Prime Minister Kevin Rudd won the 2007 election on a platform that supported the former conservative government's legal definition of marriage as a union between a man and a woman.
Rudd, who considers himself a moderate Christian, said earlier this week that he "fully respected" the integrity of same-sex relationships but would not change Labor's ban on gay marriage.
His government has moved a raft of legislation to remove same-sex discrimination from almost 100 national laws, in areas such as pensions, tax and employment.
Thousands of people held rallies and demonstrations across the nation as the vote was held, calling on Labor to legalise gay marriage.
Protesters marched through Sydney's central business district to the harbourside conference venue, many in tuxedos and white gowns, to stage a mass "illegal wedding" stunt.
A recent poll suggested up to 60 percent of Australians supported gay marriage and the statistics bureau in May announced it would count same-sex couples who declared themselves married in the national census.