State news agency Anatolian said the reform to article 301 of the penal code was approved early on Wednesday with 250 votes for and 65 against amid fierce criticism from the nationalist opposition.
After the reform, it will be a crime to insult the Turkish nation, rather than Turkishness, and the justice minister's permission will be required to open a case. The maximum sentence will be cut to two years from three.
Brussels had also given a lukewarm response to the reform. On a recent trip to Turkey, European Commission President Jose Manuel Barroso said it was a step in the right direction.
The EU has said easing restrictions on free speech is a test of Turkey's commitment to political reform as Ankara looks to advance slow-moving membership talks which began in 2005.
Defending the reform against criticism from the opposition, Justice Minister Mehmet Ali Sahin said there would still be restrictions on insulting Turkey.
"With this change, it is not a question of letting people insult Turkishness freely," he told parliament.
Last Mod: 30 Nisan 2008, 15:22