The amendments to the Migration Act narrowly passed in the Lower House on Friday morning after a stormy late-night debate in the upper house.
The 'temporary protection visas' grant refugees protection for three years but do not give them the right to settle in Australia for good.
They could also be returned to their home country after a reassessment at the end of that period.
The government re-introduced the visas, used by previous conservative governments, to deal with a backlog of 30,000 asylum-seekers who arrived by boat.
However, it also pledged to increase the overall refugee intake by 7,500 and free hundreds of children held in detention.
"This is a win for Australia," Prime Minister Tony Abbott said.
He confirmed that in a trade-off agreed by the government to get the bill through the Senate, about 470 asylum-seeker children will be among 1,500 people released from detention centres and placed in the mainland community.
Australia has come under international pressure over its offshore detention of asylum-seekers on its Indian Ocean territory of Christmas Island, where some children are held, and in Pacific camps as well as for the turning back of asylum boats.
"We always said that three things were necessary to stop the boats offshore processing, turning boats around and temporary protection visas and last night the final piece of policy was put in place," Abbott said.
"This will enable the government to deal with the backlog of 30,000 people who came to Australia illegally by boat under Labor," Abbott told a press conference, referring to the previous government.
"These people, if they're found to be refugees, will receive temporary protection visas which means that no one coming to Australia illegally by boat can expect to get permanent residency," he said.
Immigration Minister Scott Morrison said, in another trade-off, the official quota of refugees allowed into Australia would increase to 18,750 a year.

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