The so-called End of Life Choice Bill passed its third and final reading on Wednesday night with 69 votes in favour and 51 against, reports Efe news.
A referendum on the bill will be voted on within the general election next year. A second referendum on the ballot paper will also include a vote on the legalization of recreational cannabis.
Wednesday's poll was a conscience vote, meaning lawmakers were not obliged to follow the alignments of their political parties.
The bill was first presented in June 2017, and as a law would allow terminally ill people with less than six months to live the opportunity to choose assisted dying on the approval of two doctors.
The passing of the bill has caused mixed reactions between supporters and detractors.
The Euthanasia-Free NZ movement, which opposes assisted dying, criticized it as lacking "important safeguards".
Euthanasia campaigner and mother of Wellington lawyer Lecretia Seales, who in 2015 died of a brain tumour a day after the High Court rejected her request to end her life, celebrated the move.
"I'm just so incredibly proud of her. By the time she took her case to court she was so close to dying and it took so much energy for her to actually go through with it, and to appear in court was just unbelievable, especially on the last day," Shirley Seales told the New Zealand Herald on Thursday.
A poll conducted in May by Horizon Research revealed that 74 per cent of New Zealanders favour medically-assisted death for the terminally ill.
( With inputs from IANS )