© Agence France-Presse
There have been disagreements over the paramilitary forces as Iraq battles the Islamic State (IS) group, which swept across northern and western Iraq in 2014.
The bill, supported by the Shi'ite blocs in parliament, was boycotted by lawmakers from the Sunni minority who object to the existence of armed forces outside the army and police.
Iraq's Sunni Arabs and rights groups have accused the Shi'ite militiamen of extrajudicial killings, abuse, theft, and the destruction of property in the places where they have expelled IS.
The Shi'ite militias, most of them backed by neighboring Iran, existed long before IS emerged and were fighting American troops during the U.S. military presence in Iraq between 2003 and 2011.
The law will put the militias under Shi'ite Prime Minister Haider al-Abadi and give them salaries and pensions similar to those of the military and police.
The law doesn't specify how many fighters will be included in the legalized Popular Mobilization corps, or define the breakdown between members from the different communities.
The bill comes at a time when Iraqi forces are fighting Islamic State militants to recapture Mosul, IS's last major city stronghold in Iraq, with support from the U.S.-led coalition, Kurdish and Popular Mobilization forces.
Comment: More on the Iraqi PMU in the wider context of the myth of sectarianism: