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Legislation to establish a $50 million regional and small publishers fund has cleared the Senate.

The grants are the result of a deal with former senator Nick Xenophon in return for his support for the government’s wide-ranging media reforms.

A bill to set up the fund, which will provide $16.7 million a year for small publishers from 2018-19 to 2020-21, passed the upper house on Thursday.

The Australian Communications and Media Authority will hand out the grants, which can be used to help regional journalism.

Communications Minister Mitch Fifield conceded the fund met Mr Xenophon’s demands, but said the government was helping publishers while media was in a state of flux.

“Traditional revenue models have been fractured and media organisations must adapt to move with their audiences,” Senator Fifield told parliament.

Greens senator Sarah Hanson-Young said the government had deliberately locked out Guardian Australian and BuzzFeed on ideological grounds.

But Senator Fifield argued Australian-owned organisations should be favoured by the fund.

While Mr Xenophon’s bloc of votes has been crucial to passing legislation through a hostile Senate, Senator Hanson-Young said the fund was another example of him failing to deliver.

“Despite all of the hoo-ha, he’s never been a very good negotiator, has he? When it comes to the crunch what does he actually ever get?” she said.

NT Labor senator Malarndirri McCarthy, a former journalist, said the fund was a result of a backroom deal rather than the government’s commitment to supporting journalism.

“Where was the government when local news crews were being laid off? It was silent,” Senator McCarthy said.

The wider media reform package changed ownership rules to allow a proprietor to control more than two out of three platforms – TV, radio or newspaper – in one licensed market.