The new law changes each of the country's 18 provinces into several electoral districts, with one legislator elected per 100,000 people, AP reported.
It also prevents parties from running on unified lists, which in the past has helped them easily sweep all the seats in a specific province. Instead, seats will go to whoever gets the most votes in the electoral districts.
Drafting a new election law has been a key demand for the hundreds of protesters who've taken to the streets in Baghdad and south since Oct. 1.
The current election law — in place for over a decade — has consistently given a majority of seats in the legislature to the political groups shunned by the protest movement.
Like the previous law, the new one allocates at least quarter of the parliament's seats to women. A quota is also reserved for the country's religious minorities, including Christians and Yazidis.
Most Kurdish and some Sunni Arab legislators boycotted Tuesday's meeting in opposition to changing the law.
Last month, Iraq’s Grand Ayatollah Ali al-Sistani emphasized his support for the demonstrators. He called for a new election law that would restore public confidence in the system and give voters the opportunity to bring "new faces" to power.
Iraq's 329-member parliament was elected in May 2018. The vote is held every four years, but the protesters have been demanding early elections.