New South Wales Premier Chris Minns has declared "it's over", after a core component of the government's controversial workers' compensation reforms was defeated.

Labor had been trying to pass the legislation for six months, but even after a 16-hour debate that began in the upper house on Thursday, it was unable to break the impasse.

"We've got to live with the consequences now because it's been defeated," Mr Minns said on Friday.

Designed to lower the cost of the scheme and keep a lid on workers' compensation insurance premiums, a central part of the proposed reforms was raising the "whole person impairment" threshold.

The government originally wanted to lift the bar used to determine lifetime payments for psychological injuries from 15 per cent to 31 per cent.

But on Thursday, Treas

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