The bill will see 100,000 substitute teachers given permanent contracts and €4 billion invested in the education sector.
The law, which was passed with 227 votes in favour, 173 against and four absentions, will also give extra power to school heads, such as giving them greater autonomy to handpick teachers, something unions have argued will encourage nepotism and turn head teachers into “little Duces”.
Teachers and students have held several national strikes in recent months over what they think are “unfair” reforms, especially as many substitute teachers will be excluded.
A cornerstone of Renzi's mandate, the so-called Good School bill is also designed to bring greater transparency to the system, with curriculum vitae and school financial records made public online.
Centomila assunzioni, più merito, più autonomia. #labuonascuola è legge— Matteo Renzi (@matteorenzi) July 9, 2015
Pre-school children are also expected get English lessons, while the history of art and music will return to the curriculum.
Permanent contacts will be rolled out for 100,000 substitute teachers by September with others following for 23,000 nursery school teachers next year.
Education Minister Stefania Giannini was quoted by Ansa as saying that the approval was only the beginning of a fresh start for the sector.
"No law is perfect; in the event we can correct it."
Those against the move have vowed to continue their protest, while students said the autumn would be “dense with activism” against the measures.
"We cannot allow the state school system to be destroyed and dismantled piece by piece," Alberto Irone, the national spokesman of the Network of Middle School Students, told Ansa.