The amendments to the Migration Act narrowly passed the lower house Friday morning after a stormy late-night debate in the upper house Senate.
The "temporary protection visas" (TPVs) grant refugees protection for up to three years but do not give them the right to settle in Australia for good.
They could also be returned to their home country 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 the offshore detention of asylum-seekers on its Indian Ocean territory of Christmas Island, where some children are held, and in Pacific island 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."
Human rights group Amnesty International warned the legislation left no avenue for appeal and would see refugees returned to their torturers.
"It violates international law by removing any requirement to consider whether a person will be tortured or persecuted if returned home," said Graham Thom, Amnesty's refugee coordinator.
"It seems inevitable that these drastic changes to Australia's refugee processing system will see people in genuine need of protection returned to the hands of their persecutors."
TPVs, in place under prime minister John Howard, were shown to "inflict serious harm on refugees' mental health, with higher levels of stress, anxiety, depression and post-traumatic stress, compared to those with permanent protection," Amnesty 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.
"We have got stronger borders at sea because of the powers we've given our maritime agency," he told reporters.
New five-year safe-haven enterprise visas will also be brought in to encourage refugees to live in more remote areas with labour shortages.
The government negotiated Senate support for the legislation over bitter opposition from Labor and the Greens.
Greens Senator Sarah Hanson-Young accused the government of "using children as hostages" to persuade senators to back the bill.
The legislation reflects hardening attitudes Australian governments have taken against boat refugees. Those who do make it are sent to camps in Papua New Guinea and the Pacific state of Nauru and denied resettlement.
Only one boat has reached the Australian mainland since December last year, compared to almost daily arrivals previously under the Labor administration, when hundreds of people died en route
The government's "Stop the Boats" policies include turning back vessels approaching Australian waters.
The most recent case involved a people-smuggling boat carrying 38 Sri Lankans that was halted off the Cocos Islands two weeks ago.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ