The new law, which looks likely to land Italy with yet another coalition government at the national elections due between March and May, was adopted by the Senate by 214 votes in favour to 61 against.
Furious M5S members have protested from parliament benches and in the piazzas of central Rome this week.
As individual parties, the ruling centre-left Democratic Party (PD) and anti-establishment M5S are currently running neck-and-neck in the polls, with the centre-right Go Italy (FI) and anti-immigrant Northern League dragging their feet.
While a divided left may flounder, a FI and League partnership is expected to leapfrog into first place. The M5S on the other hand, which has vowed never to join forces with traditional parties, would be out of the race.
The new system had the backing of the PD, FI, League and the small centre-right Popular Area (AP).
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