The move will allow preparations to go ahead for the first provincial elections in four years. But it came only after Iraqi lawmakers agreed to set aside the divisive issues of power-sharing in an oil-rich northern region and the representation of minorities.
Iraq's parliament approved the law unanimously on Sept. 24 following months of deadlock centering on a Kurdish-Arab dispute over the city of Kirkuk, which the Kurds seek to incorporate into their semiautonomous region in the north.
But Christians, Yazidis and other minorities objected to the exclusion of an article that would guarantee them a certain number of seats on the local councils.
Firyad Rawndouzi, a Kurdish lawmaker, told The Associated Press that the three-member panel led by President Jalal Talabani had signed the law Friday and asked the parliament "to solve the minorities problem."
Support has been growing among Iraqi lawmakers from all sides to find a way to restore a quota system for minorities. But critics said it was difficult due to a lack of census data.
"There is an effort to come up with an appendix regarding the minorities later on," presidential council spokesman Nasser al-Ani said.
U.S. officials hope the election, which must be held by Jan. 31 according to the new legislation, will give greater representation to minority Sunni Arabs and disaffected members of the Shiite majority.
Many Sunnis and some Shiites boycotted the last provincial election in January 2005, enabling Shiite religious parties and the Kurds to win a disproportionate share of the seats.
Empowering Sunnis through a new election may reduce support for the waning insurgency - though not among extremist groups.
Followers of anti-U.S. Shiite cleric Muqtada al-Sadr also are hoping to make large gains in southern provinces, where many of the councils are dominated by rival Shiite parties in the ruling government coalition.
The 275-member Iraqi parliament had been heavily criticized for its inability to pass the law needed to establish the rules and guidelines for the vote. The election had been due as early as Oct. 1, then the date was pushed to the end of December.
U.S. officials have complained privately that Iraqi politicians have failed to take advantage of the sharp drop in violence - down 80 percent since last year, according to the U.S. military - to forge lasting power-sharing agreements.
The approval from Talabani and his deputies, Sunni Vice President Tariq al-Hashemi and Shiite Vice President Adel Abdul-Mahdi was especially significant because they had vetoed a previous version over the summer.
That measure had been approved by parliament despite a Kurdish walkout in anger over Kirkuk.
But Kurdish legislators agreed to the latest proposal after all sides accepted a U.N. compromise to put off the vote in Tamim province, which includes Kirkuk, and form a committee to recommend separate legislation for elections there by March 31.