An overwhelming majority of lawmakers voted for the bill on Tuesday, including the ruling Liberals, their right-wing allies, and the main opposition Social Democrats.
Under the upcoming law, refugees would be required to hand over valuables worth more than 10,000 Danish kroner (1,340 euro, $1,450). Wedding rings and other items of sentimental value are to be exempt. Also, the police would be able to seize cash above 10,000 kroner.
The government argues that Danish citizens also need to sell their jewelry and hand over their money in order to receive state benefits. However, Danish nationals are not subject to the same kind of search as the refugees.
Also, the new measures would extend the waiting period for family reunification from one year to three years.
The Danish ruling party first announced the controversial idea in December. The initial draft had no exceptions for items of sentimental value and aimed for a much lower 3,000-kroner threshold.
Many international organizations and activists immediately spoke out against the move, some comparing it to the Nazi treatment of Jews.
Danish Prime Minister Lars Lokke Rasmussen defended the measure, calling it "the most misunderstood bill in Denmark's history," Deutsche Welle reprted.
Faced with international pressure, the party watered down the legislation. However, even the new version of the bill remains controversial.
Ahead of the Tuesday vote, the UN's refugee agency, the UNHCR, said the bill violated several conventions on rights and refugees, and the Council of Europe aired its concerns about the "compatibility" with the European Convention on Human Rights.
In addition, Amnesty International has called the three-year waiting period for family reunifications "cruel," saying it could "have a devastating impact on families.