The legislation placed the Hashd al-Shaabi forces under the command of Prime Minister Haider al-Abadi and gave them salaries and pensions that mirror those of the military and the police, AP reported.
In a statement, al-Abadi welcomed the legislation and said the popular forces would cover all Iraqi sects.
"The Popular Mobilization will represent and defend all Iraqis wherever they are," Abadi said.
The vote comes at a time when the government is waging a major campaign to dislodge Daesh (ISIL or ISIS) from Mosul, Iraq's second largest city and the last major urban center still controlled by the terrorist group.
They have supported the government in the fight against Daesh since the Takfiri group swept across much of northern and western Iraq in 2014.
The Hashd al-Shaabi forces have played a key role in checking the advance of Daesh on Baghdad and the holy cities of Samarra and Karbala in the summer of 2014 and later helped liberate Daesh-held areas to the south, northeast and north of Baghdad.