Human Rights Watch (HRW) said the Protection of Pakistan Bill (PPB), passed by Parliament on Wednesday, violated the country's international legal obligations.
The new law doubles the maximum sentence for terror offences to 20 years and allows security forces to hold suspects for up to 60 days without disclosing their whereabouts or allegations against them.
HRW said the new law could be used to suppress peaceful political opposition and criticism of government policy.
"This vague and overbroad counterterrorism law gives a green light for abusing suspects in detention, which is already far too common in Pakistan," said Phelim Kine, deputy Asia director at Human Rights Watch, in a statement.
"Prime Minister Nawaz Sharif... should ensure that this law is replaced by one that ensures the protection of basic rights in the fight against terrorism."
The legislation, passed as the military fights a major offensive against Taliban and al Qaeda linked militant hideouts in the North Waziristan tribal area, was watered down from its initial form.
Originally the law would have allowed detention for 90 days and permitted security forces to open fire on anyone they see committing or "likely to commit" terror offences. Now officers can only shoot suspects as a "last resort".
HRW said the new law would violate fundamental rights enshrined in the International Covenant on Civil and Political Rights, which Pakistan ratified in 2010.
The New York-based campaign group said the bill was an improvement on the original ordinance issued last year, but was still vague and could be used to stifle peaceful political protests.
HRCP condemns govt for passing PPB
Additionally, the Human Rights Commission of Pakistan has also condemned the government for deliberately following the model of a police state.
The commission on Friday issued a statement saying, "The Human Rights Commission of Pakistan (HRCP) is appalled at the failure of Parliament to block the passage of the Protection of Pakistan Bill, a draconian legislation to the core."
"While the Senate did increase a few safeguards against the capricious use of the powers granted to law enforcing agencies, it achieved little more than giving the bitter pill a thicker coating of sugar," the statement said.
It further said that "the addition of broadly defined ‘militants’ and insurgents to the list of the security agencies’ targets makes the measure more sinister than before. The loose language of the bill and the power allowed to the government to add new offences to the schedule heighten fears of the enactment’s abuse, especially in areas such as Balochistan, where political dissent has long been construed as sedition."
"HRCP calls upon all fair-minded lovers of democracy and human rights to continue their resistance to the measure till the authorities can see light and realise the need for undoing their folly."
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Right after "developed" countries like the US get rid of laws like the PATRIOT Act. We're waiting...