The number of penalty points will also be upped from three to six for the offence.
It will bring Northern Ireland into line with the rest of the UK, and comes into effect today.
Infrastructure Minister Nichola Mallon outlined the amendment to the Road Traffic Offences Order 2020 in the Assembly on Tuesday.
She said despite the risks, too many people continue to flout the law on a daily basis.
“This new legislation is a strong signal to those willing to take risks on the road that this behaviour will not be tolerated,” she said.
“From Wednesday, the penalties for using a hand-held mobile phone while driving will be increased to six points and a £200 fine, bringing these in line with Scotland, Wales and England.
“If you are caught for a second time (or accrue 12 points on your licence) there will be no more chances – you will face a court hearing, disqualification and fines of up to £1,000.
“Newly-qualified drivers, who have a ceiling of six points for the first two years after passing the test, will face an immediate ban.”
She added: “The consequences of using a mobile phone while driving go far beyond the loss of a licence.
“Distraction while driving is one of the main causes of road traffic collisions on our roads. Many of those collisions causing serious injury and some resulting in loss of life.
“My message today couldn’t be clearer – drive responsibly, put your phone down or risk losing your licence. This is not a minor offence and you will not get away with it.”
The move was welcomed by parties across the Assembly.
DUP MLA Michelle McIlveen, who chairs the Infrastructure Committee, said members had no hesitation in supporting the legislation.
“The technological advancements in phones has made the device an indispensable addition to our lives, however it is that urge to check messages and respond to the sounds of a notification which makes them so dangerous whilst driving,” she said.
“The only way to reinforce the danger they pose is to make the penalty severe.”
UUP MLA Roy Beggs described the increases as “proportionate”, describing how many people are “almost addicted” to their mobile phone and forget the risks of being distracted while they are driving.
Alliance MLA Andrew Muir also welcomed the changes as a “step in the right direction”.