A plan to give $50,000 to each victim passed the House but was rejected in the Senate. Republicans said the state did not have the funds.
Democratic Governor Beverly Purdue set aside $10m for the plan in her budget.
It is thought about 7,600 people were sterilised in North Carolina from 1929 to 1974. Many were poor black women.
While many states had sterilisation plans targeted at “feeble-minded” people, North Carolina stands out for widening its programme after World War II.
The measure was also supported by Republican House Speaker Thom Tillis, who has said that he sees the Senate’s exclusion of the measure from the state budget as a personal failure.
Earlier, the plan was approved by the House.
Another lawmaker who supported the bill said the decision made her ashamed to be part of the General Assembly.
“I’m appalled that the North Carolina Senate today took no action to compensate the victims that we as a state robbed of their rights to reproduce and to have children,” Democratic lawmaker Earline Parmon said.
“At this point, I have lost all hope.”
But Republican senators said the state could not afford to include the money in the state budget.
“The state has no money anyway and the teachers would like to have a pay raise, and state employees would like to have a pay raise and you’re dealing with a $250 million shortfall in Medicaid,” Senator Austin Allran said.
He added that passage of the measure might encourage other groups who say they have been victimised in the past to seek compensation.
Both chambers of the North Carolina government must now approve the final version of the budget.
One of the most vocal victims of sterilisation, Elaine Riddick, from Atlanta, Georgia, says she was raped and then sterilised after giving birth to a son when she was 14.
“I have given North Carolina a chance to justify what they had wronged,” Ms Riddick said.
“These people here don’t care about these victims. I will die before I let them get away with this.”