The new bill had been a campaign pledge of the country's coalition government.
Germany is set to raise the country's minimum wage to €12 per hour in October, the government announced.
Chancellor Olaf Scholz said that the new law will benefit more than 10% of the country's working population.
The bill was passed as part of a coalition agreement between Scholz's Social Democrat party (SPD), the Greens and the liberal Free Democratic Party (FDP).
This measure is set to increase pay for nearly 6.2 million workers, including self-employed citizens and flexible workers.
Germany plans to raise its minimum wage in two stages, from €9.82 to €10.45 on 1 July, and then to €12 on 1 October.
Labour Minister Hubertus Heil said the law will particularly benefit women, as well as workers "in the east of the country" and "those who kept Germany going during the pandemic".
Along with the increase in the minimum wage, the government approved a rise in the monthly income ceiling for so-called "mini-jobs" -- part-time jobs -- from €450 to €520.
The measure will also boost overall purchasing power in Germany by €4.8 billion, according to the German Trade Union Confederation (DGB).
The increase in the minimum wage could also fuel inflation -- which has already reached a record high of around 5% at the end of 2021 -- and could affect food prices.
Critics have said that a rise in the minimum wage will make it harder to hire people during the recovery phase, as Germany's economy reels from the COVID-19 pandemic.