The revision to the armed forces law, pushed mainly by President Prabowo Subianto's coalition, was aimed at expanding the military's role beyond defence in a country long influenced by its powerful armed forces.
The amendment has sparked fears of a return to the era of late dictator Suharto, who ex-general Prabowo once served and who used military figures to crack down on dissent.
"Now it's the time for us to ask the factions to approve the amendment... can we agree to legalise it into a law?" house speaker Puan Maharani asked the plenary session.
Lawmakers shouted "agree" and Puan banged the gavel, signifying the amendment had passed.
Military chief General Agus Subiyanto told the parliament last week that the military law, which was passed in 2004, was outdated and no longer relevant.
Under the previous version of the law, military officers could serve in 10 government agencies, including the defence ministry.
To hold civilian positions in other government institutions, soldiers were expected to resign or retire from military service.
The revised law now permits military officers to serve in 14 state institutions, including the attorney general's office and disaster mitigation agency.
Rights groups have said the change would enable officials to fill more civilian posts with active-duty military personnel and weaken legal checks on abusive officials.
"President Prabowo appears intent on restoring the Indonesian military's role in civilian affairs, which were long characterized by widespread abuses and impunity," Andreas Harsono, senior Indonesia researcher at Human Rights Watch, said in a statement.
"The government's rush to adopt these amendments undercuts its expressed commitment to human rights and accountability," he said.
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