The vote Sunday during Australian Labor Party's national conference saw 206 members voting in favor and 185 against lifting the decades-old policy.
"We are at the right time in the history of the world to seize a new era of opportunity in this, the Asian century," said Australian Prime Minister Julia Gillard.
"We need to make sure that across our regions we have the strongest possible relationships we can, including with the world's largest democracy, India," she said, adding that it wasn't rational that Australia sells uranium to China but not to India.
India aims to increase its use of nuclear power from the current 3 percent of electricity generation to 40 percent by 2050.
Welcoming the "historic achievement," United India Association President Amarinder Bajwa told India's Business Standard newspaper that his group had been "urging and lobbying for the sale of uranium to India at all the levels of government."
But India's neighbor Pakistan -- also not a signatory of the NPT -- is perturbed with Australia's decision.
If Australia is going to lift the ban on a country which has not signed NPT, it is hoped it will also (be) applied to Pakistan (in) the same way," Pakistan's high commissioner to Australia Abdul Malik Abdullah told the Australian Broadcasting Corp.
"Pakistan is playing the front line state role in the war against terrorism. Because of that war, if Pakistan is in a difficult situation, should Pakistan be meted out a treatment which is discriminatory?"
Pointing to the issue of A.Q. Khan, a Pakistani scientist accused of passing nuclear secrets to Iran and Libya, Abdullah said that case was in the past and that the country's civilian nuclear program has remained under the International Atomic Energy Agency's safeguards.
Australia has nearly 40 percent of the world's known uranium reserves, currently supplying 19 percent of the world market. Customers include China, Japan, Taiwan and the United States.
The government expects total exports to increase from about 10,000 tons annually to 14,000 tons in 2014, worth around $1.7 billion.
Australian Uranium Association Chief Executive Officer, Michael Angwin, projected that Australia could sell about 2,500 tons of uranium a year to India by 2030, generating about $300 million.
Because India already has access to uranium from competitors of Australia such as Kazakhstan, he said, Australia would have to work hard to compete.
2014: The Year in Fashion [PHOTOS]
EIA: Russia diversifying energy production