Australia on Sunday introduced a controversial carbon tax in a bid to tackle climate change, with Prime Minister Julia Gillard hailing the move amid opposition warnings it will stifle industry.

The tax on corporate pollution, which drew thousands of protesters on to the streets of Sydney on Sunday, will mean some 350 entities will be liable to pay Aus$23 (US$23.5) for every tonne of carbon emissions they produce.

It comes into effect on the same day as an equally contentious levy on mining profits, the hard-fought Minerals Resource Rent Tax on iron ore and coal, which helped topple former prime minister Kevin Rudd.

Gillard hailed the introduction of the carbon tax in Australia, one of the world's worst per capita polluters.

"As a Labor government, we haven't done all of this for no reason, we've done it because we believe it's pivotal to Australia's future," she told the Australian Broadcasting Corporation.

"Today is a Sunday where Australians will go about their ordinary lives, but today is a day too when we seize the future, we seize a clean energy future."

The government hopes the scheme will mean that by 2020, Australia's carbon pollution will be at least 159 million tonnes less per year than it would be otherwise -- the equivalent, it says, of taking 45 million cars off the road.

The plan is to start with a fixed price and transition to a market-based emissions trading scheme after three years, similar to that adopted by the European Union.

But the tax has been bitterly opposed by the conservative opposition, which argues it will see the cost of living soar as businesses pass their increased costs onto consumers as well as hurt industry.

"(The carbon tax) is the slow boa constrictor sapping life out of one business after another," opposition lawmaker Warren Truss, leader of the Nationals, told the ABC.

The government says the increase in the cost of living as a result of the tax will be modest, about 0.7 percent, and for most people will be offset by a compensation scheme.

But opposition leader Tony Abbott pledged on Twitter that "if elected we will immediately legislate to scrap the carbon tax to help families" and he has previously vowed to abolish the mining tax if he wins the 2013 elections.

The pollution levy is a deeply divisive issue in Australia, fuelling anger after Gillard pledged there would be no carbon tax under a government she led ahead of the 2010 election but, then once elected, set out to introduce one.

Several thousand people took part in a public rally against it in Sydney on Sunday, many waving banners such as 'We voted no carbon tax', while in Melbourne about 150 demonstrated on the steps of state parliament.

The mining tax has also been a difficult reform with Rudd's initial ambitious plan to levy the "super profits" of Australia's booming mining sector at 40 percent provoking a huge backlash from the powerful industry.

Gillard, who ousted Rudd in a Labor party room coup shortly after the tax was announced, later negotiated a 30 percent impost on coal and iron ore only.

But critics have warned that the resources industries, whose exports to fast-growing Asia helped Australia dodge recession during the financial crisis, will suffer under the tax expected to bring in Aus$3.0 billion in 2012-13.

Gillard said despite the political fallout, the carbon levy which is expected to bring in Aus$4.0 billion in its first financial year, was "the right thing" to reform the economy.

"In the months ahead I think as the dust settles from this debate, Australians will be able to see that we've done the right thing to tackle climate change," she told reporters in Melbourne.