The law was approved late Sunday night in an emergency parliament session after days of wrangling by politicians. It is seen as an important step toward political reconciliation and easing the withdrawal of U.S. troops.
Shortly before midnight, lawmakers nearly unanimously approved the law that has been mired for weeks over demands for greater political voice for minority Sunnis and the distribution of seats in Iraq's expanded 325-seat parliament in next year's election.
The accord needed final approval from parliament, which was meeting in an emergency late-night session to vote on the deal, state television reported. But no objections are expected from lawmakers since party bosses have backed the agreement.
The pact must receive final approval from lawmakers. But no objections are expected since party bosses have backed the main points of the agreement.
The election is scheduled for Jan. 16, but a delay of a month or more now appears likely. A longer postponement could have complicated the withdrawal timetable for U.S. forces, which are scheduled to end combat missions in August.
The details of the pact were not immediately clear. But it appears to resolve objections from Vice President Tariq al-Hashemi, who has vetoed the election law to demand equal voting rights for Iraqis living abroad - mostly fellow Sunnis whose votes could increase Sunni clout in the next parliament.
Kurds also had objected to the distribution of seats among the country's 18 provinces, claiming they were being under-represented at the expense of Sunnis and majority Shiites, who suffered widespread repression under Saddam Hussein but took command of Iraqi's political leadership and security forces after his fall.
The next election will also be an critical test for the Shiite-led government of Prime Minister Nouri al-Maliki, which has staked its future on a broad pro-Western political coalition with Sunnis and other factions. His main challenge comes from within the Shiite ranks: an alliance of religious-oriented Shiite parties that include the biggest Shiite political group and anti-U.S. cleric Muqtada al-Sadr.
The new parliament will be expanded from the current 275 seats to 325, said Deputy Parliament Speaker Khalid al-Attiyah. At least 15 seats are set aside for religious and ethnic minorities such as Christians and Turkomen.
In an apparent concession to the Kurds, some seats that had been shifted to Sunni areas were returned, said al-Attiyah. But Kurds, who are overwhelmingly Muslim, also demanded at least two of the special minority seats for Christian Kurds, said political officials close to the talks.
The officials spoke on condition of anonymity because they were not allowed to speak to media.
Another important change also was agreed for the coming election: voting lists will be "open" and have all the names of the candidates. In past elections, voters had a so-called "closed list" with only the parties - which then announced their parliament members after the ballots were counted.
"It will be an open list election," said al-Attiyah.
There was great pressure to reach an accord. Al-Hashemi's veto expired Sunday and he had threatened to reinstate it if his demands were not met - which would have sent the election planning process into a tailspin.
Up until the last moment, al-Hashemi had warned he would again use his veto power. During the showdown talks, however, al-Maliki and U.S. diplomats appealed strongly for concessions on all sides, said the officials close to the talks.
Earlier Sunday, gunmen killed four Iraqi policemen at a checkpoint west of Baghdad, police officials said.
The attack came as security officials warned of a possible rise in insurgent attacks before next year's election and the U.S. withdrawal of combat troops due by the end of August. It also follows an attack last month that left 13 dead in the same area.
Gunmen stormed the checkpoint in Abu Ghraib, on the outskirts of the Iraqi capital, at about 7 a.m. and killed one policeman on duty and three others on a break, according to two police officials who spoke on condition of anonymity because they were not authorized to give information to the media.
Last month, 13 villagers in the Abu Ghraib area were killed in an attack possibly linked to tribal rivalries.
Witnesses said gunmen in Iraqi army uniforms abducted and killed the 13, whose bodies were later found with gunshot wounds to the head. They included a local leader of Iraq's largest Sunni party, which once helped fight al Qaeda.
By Associated Press Writer Brian Murphy