The new bill is "a step forward to make Italy safer," far-right Interior Minister Matteo Salvini said on Facebook.
It will help Italy "be stronger in the fight against the mafia and (people) smugglers, reduce the costs of excessive immigration, expel delinquents and fake refugees, strip terrorists of citizenship, (and) give the police greater powers," Salvini said.
Parliament has 60 days to debate, amend and vote on the bill before President Sergio Mattarella signs it into law.
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Salvini said the decree streamlines the rules for processing asylum requests and brings Italy into line with other EU countries.
Humanitarian protection a lower level of asylum that is based on Italian rather than international law would be awarded based on six strict criteria.
These include whether there was urgent medical need or if the applicant was the victim of a natural disaster, Salvini told journalists.
He said around a quarter of those who have applied for asylum in recent years in Italy have been given humanitarian protection, which is a provisional status.
Those seeking refugee status will have their requests suspended if they are "considered socially dangerous or convicted in the first instance" of crimes, while their appeals are ongoing.
They will in future be housed in bigger reception centres, while minors and those with recognised refugee status will be housed in different parts of the country in order to facilitate integration.
The new law also lets local police have Taser stun guns and makes it easier to evict squatters by getting rid of the obligation of finding provisional housing for the most vulnerable.
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The controversial bill has been heavily criticised in recent weeks, including by members of the anti-establishment Five Star Movement which governs in coalition with Salvini's far-right League.
The head of Italy's bishops' conference Nunzio Galantino has lamented the fact that security and the treatment of migrants are dealt with in the same bill.
"This means that the immigrant is already judged because of his condition and that he's already considered a public menace, whatever his behaviour. This is a bad sign," Galantino said.
Salvini, who is also deputy prime minister, has taken a hardline on immigration since the coalition came to power in June, refusing to allow ships carrying migrants and asylum seekers rescued in the Mediterranean to dock at Italian ports.
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