The government of strongman Prime Minister Hun Sen says the law is aimed at regulating the country’s 3,400 trade unions.
But unionists and international human rights groups say it will dilute the power of labour groups in a sector still rife with abuse.
Around 700,000 factory workers form the bedrock of Cambodia's $7 billion textile industry, which supplies brands including Gap, Nike and H&M.
Critics have expressed particular alarm at provisions forcing unions to report their finances to the government each year as well as granting authorities further powers to close down labour groups.
"The government wants to restrict our rights by creating this law," Ath Thorn, president of the Coalition of Cambodian Apparel Workers' Democratic Union, told AFP.
"The law will limit our work... and employers can request for the dissolution of unions or find ways to block unions from protesting," he added.
The draft law still needs approval by the Senate but its passage is a near-forgone conclusion since the upper house is dominated by ruling party lawmakers.
Two labour activists were injured on Monday morning during scuffles with authorities outside parliament.
Hun Sen, who has ruled Cambodia for more than three decades and tolerates little dissent, has frequently clashed with unions.
Influential garment factory owners want to restrict the number of unions, blaming them for rocky labour relations that they say threatens to undermine a lucrative sector.
Parliament also approved a rare cabinet reshuffle by Hun Sen, a move he described as a "necessary measure" as he gears up for local polls next year and a general election in 2018.
Hun Sen has surrounded himself with a coterie of loyalists who are rarely moved.
In total 26 officials were promoted or reappointed to other portfolios while two ministers were removed.
Among those reshuffled were Hor Namhong, Hun Sen's close ally who had been foreign minister for 18 years. He was replaced by telecommunications minister Prak Sokhon, though Hor Namhong will remain a deputy prime minister.
Analysts say the reshuffle is an attempt to halt Hun Sen's waning popularity ahead of upcoming polls.
"The coming elections are certainly on his mind," analyst Ou Virak told AFP.
Opposition politicians accuse Hun Sen's party of rigging the 2013 elections in their favour, a charge they deny.