"I know of situations where people are too scared to wear red or blue in certain towns, and of kids getting beaten up because they're wearing red or blue. It's nonsense," he said.
"The only reason someone wears a patch is to inflict terror ... so I support the removal of gang insignia.''
Mr McClay's members bill was initially debated two weeks ago. When it was picked up in Parliament yesterday, it had support from most parties.
Labour, the Greens and Mana all opposed the bill but it passed its first reading with a majority of 69 to 52.
If it became law, offenders could face a fine of up to $2000. Police would also have the right to confiscate and destroy patches and insignia.
The bill introduces restrictions around gang insignia being displayed at places such as government departments
and council facilities, including Work and Income and Housing NZ offices, as well as the grounds and buildings of public schools and hospitals.
Mr McClay said: "Gangs are commonly identified by their insignia, which is often worn as a badge of pride. What it really demonstrates is a high probability that the wearer has committed crimes to earn the right to wear gang colours or insignia."
He said government departments and Crown entities provided a valued service to members of the public and staff and visitors deserved to feel safe in the work place or service.
However, the bill has sparked a public debate between Mr McClay and Mana MP Hone Harawira.
Mr Harawira has labelled the bill racist and said if it was made law he would consider wearing a gang patch to Parliament.
The bill will now go to the law and order select committee.
