The US Senate has passed the revised Foreign Intelligence Surveillance Act by 69 votes to 28.
The legislation expands the role of US surveillance on domestic and foreign telephone and internet traffic.
The bill has taken nearly a year to push through, and has granted retroactive immunity to telecoms companies like Verizon and AT&T.
These telcos had allowed the government to set up listening stations within their networks, despite such actions being illegal.
"This bill will help our intelligence professionals learn who the terrorists are talking to, what they're saying and what they're planning," said President Bush after the vote.
Bush had previously said that he would veto any bill which did not give immunity to telcos that had helped with the spying programme, which was revealed by The New York Times.
"This president broke the law," declared Wisconsin senator Russell Feingold.
The original law was brought in 30 years ago after the reign of President Nixon and the surveillance programme he instituted.
The new law will allow for much more surveillance of Americans at home and abroad, as well as the monitoring of all internet traffic that passes through the US, as much as 35 per cent of the global total.
"It is an immeasurable tragedy that, just after its return from the Fourth of July holiday, the Senate has chosen to pass a bill that betrays the spirit of 1776 by radically expanding the president's spying powers and granting immunity to the companies that colluded in his illegal surveillance programme," said Kevin Bankston, senior staff attorney at the Electronic Frontier Foundation.
"This so-called compromise bill represents a shameful capitulation to the overreaching demands of an imperial president.
"As Senator Leahy put it in yesterday's debate, the retroactive immunity provision of the bill upends the scales of justice and makes Congress and the courts handmaidens to the White House's cover-up of its illegal surveillance programme."
Presidential hopeful Barak Obama supported a compromise bill that would have stripped telcos of retroactive immunity, and allowed the current 46 lawsuits against them to go ahead.
Republican presidential candidate John McCain missed the vote.
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