The legislation, introduced by Climate Change Minister Greg Combet, was passed Wednesday, Australia's Fraser Coast Chronicle newspaper reported.
The CEFC is a component of Australia's Clean Energy Future plan to cut the country's emissions by 5 percent from year 2000 levels by 2020 and further bring emissions down 80 percent by 2050.
The world's largest exporter of coal and iron ore, Australia relies on coal to generate about 80 percent of its electricity.
The government says the transformation of the country's energy sector will drive around $100 billion in investment in the renewables sector through 2050.
''The CEFC will drive investment in innovative renewable energy, low pollution and energy efficiency technologies to ensure our economy continues to grow while we reduce carbon pollution,'' said Combet, the Sydney Morning Herald reported.
Investments, the government says, will focus on renewable energy, energy efficiency and low emissions technologies.
The CEFC will be run by an independent board comprised of experts in banking, investment management and clean energy and low emissions technologies.
"In a world of increasingly scarce resources and global competition, a vibrant clean energy sector is the job creator of the future and this is how we achieve it," Australian Conservation Foundation economic adviser Simon O'Connor said in a statement Wednesday prior to the legislation being introduced.
"Last year, the world invested $260 billion in renewable energy, outstripping investment in fossil fuels for the first time," he said.
"The $10 billion invested in the CEFC could lead to $100 billion of private investment in new clean energy sources, like wind, big solar and geothermal. The world is racing to find the best and cleanest energy sources -- this is a race Australia can't afford to lose."
But O'Connor says that the CEFC should not be limited by tying it to the country's target of achieving 20 percent renewable energy by 2020.
Prospective projects for CEFC funding will be required to have Australian Industry Participation Plans, as does the country's resource sector, in which projects have to demonstrate that they have given Australian firms "full, fair and reasonable opportunity," the government says.
Australia's carbon pricing scheme, also part of the country's Clean Energy Future plan, goes into effect in July, in which 500 of Australia's top polluting companies will pay $24 for each ton of carbon they emit.