The bill against the practice, which aims to "cure" a non-heterosexual person of their sexuality, was voted through unanimously.
Under the new law, anyone who tries to "change, repress or eliminate a person's sexual orientation, gender identity and/or gender expression" will be fined or even jailed.
Professionals will face heftier fines of up to 10,000 euros (Â£8,450/$10,700).
They could also be jailed for up to a year, according to Malta Today.
The bill also enshrines in law that "no sexual orientation, gender identity or gender expression constitutes a disorder, disease or shortcoming of any sort".
Malta was named the best European country for LGBT rights by advocacy group ILGA-Europe in 2015.
Gay conversion therapy has increasingly come under the spotlight in recent years, but remains more popular in the US than in Europe.
Its supporters claim it uses standard psycho-therapeutic and counselling techniques so people can change or reduce their "homosexual tendencies" of their own free will.
But the World Psychiatric Association has denounced the practice as unethical, unscientific and harmful to those who undergo it.
Two years ago, NHS England and the Royal College of Psychiatrists - along with 12 other organisations in the UK - signed an agreement which called it "potentially harmful and unethical".
It has also been banned on minors in several places in the US, including California and Illinois.

At Warwick Crown Court her barrister accused the prosecution of launching a "tabloid attack" against her.
Mrs Wadsworth and her husband Tony are on trial accused of indecently assaulting seven boys in the 1990s.
The couple deny the offences and charges of outraging public decency.
Mrs Wadsworth's barrister, David Hislop QC, criticised the prosecutions use of a "Naughty but Nice" charity calendar, in which Mrs Wadsworth posed as Lady Godiva, to suggest her career was forged "on the twang of a stocking".
He suggested the prosecution used the calendar because of "shortcomings in their evidence".
Mr Hislop claimed that prejudice and emotion had infected the investigation into allegations against the couple who previously worked for BBC Leicester and Birmingham-based BBC WM.
He stressed to the jury that Mrs Wadsworth was not on trial to assess her morals.
She accepts having sexual encounters with "young men" but denies they were underage.
The couple, from Broughton Astley in Leicestershire, are charged with five counts of outraging public decency alleging they engaged in sexual activity "against a tree" in woodland in Warwickshire in view of others between July 1992 and June 1996. They deny the charges.
Mrs Wadsworth has pleaded not guilty to 11 charges of indecent assault, while her husband denies nine counts of the same offence.
The trial continues.
Malta has become the first European country to ban gay conversion therapy.
[NEXT_CONCEPT]
Former BBC presenter Julie Wadsworth, accused of sex offences against under-age boys, is the victim of "poisonous and untrue" allegations, her defence claims.