The more than 110,000 strong fighting group has been at the forefront of the fight against ISIS in Iraq.
Its role is critical but controversial with human rights groups, which allege the units have committed atrocities in the battlefield against the minority Sunni population.
The bill, officially passed Saturday, makes the units an independent entity of the Iraqi Armed Forces that answers directly to the Prime Minister. Under the new rules, the units will be overseen by the Popular Mobilization Unit Committees, or PMUC.
Critics argue this effectively legitimizes a militia, which does not maintain the same standards of training or battlefield conduct as the national military. Of the 328-seat Parliament, 208 voted in favor of the law. A majority of the Sunni members boycotted and left the chamber.
"I believe this committee has been politically motivated and it will have similar impact as Iran's Revolutionary Guards, and aims to weaken the Iraqi army," Raad al Dahlaki, a Sunni member of Parliament, said Monday.
"We should definitely support and show appreciation to Popular Mobilization Units, but there is absolutely no need for an alternative force separate from the Iraqi army and police," he said.
Battle for Mosul
Many fear the ongoing battle to retake Mosul
, Iraq's second largest city, will reignite sectarian tensions and inflame calls of autonomy from various religious and ethnic groups.
Sunni politicians say the legislation is part of a continuing trend by the Shiite-led Baghdad government to sideline their interests in the country's political future.
"We have expressed our rejections to this law but they did not listen to us," Osama al-Nujaifi, Iraq's Sunni vice president, said in a press conference Saturday. "The majority does not have the right to determine the fate of everyone else."
Those who defend the law say it brings the units under the purview of the government, which means more oversight and greater accountability.
"If this law had not passed, we would be worried that we could end up with various militant groups who are not under the umbrella of the military committee," said Adnan al-Assadi, a Shiite member of Parliament.
Assadi argued the law will unify Iraq's various fighting factions and pointed to the percentage of Sunni fighters in the units as an example of diversity. Some 9,000 Sunni fighters are part of the PMU, said Ahmed al-Assadi, a PMU spokesman.
Iraqi Prime Minister Haider al-Abadi also welcomed the new law and said the fighting force "will represent and defend all Iraqis wherever they are."
The PMU's forces have been fighting ISIS militants in Iraq since 2014. They are made up of dozens of militia groups affiliated with various political parties. Some have varying degrees of support from the Shiite-run government in Tehran.
The new law requires the PMU to end loyalties and affiliations with all political parties. The head of each division and any higher-ranking commanders within the PMU now must be approved by the Iraqi Parliament.
In October, the Iraqi government announced the military offensive to retake Mosul from ISIS. Human Rights Watch called on Iraqi commanders to prevent the PMU from taking part in the planned operation, citing a record of abuses against the Sunni population, including summary killings, enforced disappearances, torture and the destruction of homes.
The Prime Minister has said repeatedly the PMU will not be allowed to enter the city of Mosul but will participate in other battles in Nineveh province.
Thousands of fighters are engaged in an offensive to wrest control of Tal Afar from ISIS. The 50,000 predominantly Sunni resident say they fear the forces will enter the city and carry out retribution killings.