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.
Malta has become the first European country to ban gay conversion therapy.