The bill, which now goes to the Senate, was initially intended as a measure to rein in unfettered logging, and increase protections of Brazil's forested areas, which play an important role in reducing greenhouse gases.
But farm-based economic interests prevailed against environmentalists in reshaping the bill to ease restrictions that have been in place since 1965 and are credited with curbing deforestation.
"The Chamber of Deputies (on Tuesday) turned what was a forest protection law into something that will encourage deforestation and the uncontrolled advance of farming and ranching," the NGO Greenpeace charged in a statement.
Environmentalists, scientists and ten former environment ministers fought to the bitter end to stop the bill, which now goes onto the Senate.
The development was seen as a first setback for President Dilma Rousseff who enjoys majority support in Congress but was unable to keep her party united as powerful rural lobbies managed to divide lawmakers.
Rousseff's Environment Minister Izabella Teixeira has warned that the president could veto points in the bill that might encourage deforestation.
But National Farm Federation chief Katia Abreu said, "Brazil's farm and ranch interests are celebrating the step forward."
Brazil's Forest Conservation Law dates back to 1965; it limits the use of woodlands for agricultural purposes, requiring owners to keep a certain percentage of their land in its natural state.
In the sprawling Amazon River basin region, the existing law requires that as much as 80 percent be kept as woodland.
But the new law would allow huge areas to be farmed if they were illegally logged before July 2008; and it would allow farming along environmentally sensitive riverbanks.
"This is an amnesty that sends the message that environmental crimes are not punished. And that will foster more deforestation," argued Paulo Adario of Greenpeace.
With international crop prices high and in many cases rising, farmers are keen to cash in as much as possible. Brazil is a major producer of soybeans and beef.
Copyright APP (Associated Press of Pakistan), 2011
Copyright AFP (Agence France-Presse), 2011