The country's intelligence bureau will be able to scan international calls, faxes and e-mails.
The measure was passed by a narrow majority after a heated debate in the Stockholm parliament.
Critics say it threatens civil liberties and represents Europe's most far-reaching eavesdropping plan.
"By introducing these new measures, the Swedish government is following the examples set by governments ranging from China and Saudi Arabia to the US government's highly criticised eavesdropping programme," said Peter Fleischer, of Google.
But those who support the plans say such measures are needed to protect national security from those increasingly using such technology to plan attacks.
The government insists that it will filter out domestic communication and monitor only international calls, faxes and messages.
Some experts insist that it is impossible to differentiate between domestic and international traffic.
Under the new law, Sweden's intelligence bureau will no longer need a court order to begin surveillance, unlike the police.
The former head of the country's intelligence agency, Saepo, said the law failed to safeguard individual rights and should be scrapped.
"I think the law needs to be re-written. It is not enough to create a few checks and balances... It is the law itself, there is something wrong with it," Anders Eriksson told Swedish radio ahead of the vote.
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