MPs have voted to hold a referendum on reforming the Westminster voting system on 5 May next year.
The Parliamentary Voting System and Constituencies Bill calls for first-past-the post elections to be replaced by the alternative vote (AV) system.
It also stipulates the number of parliamentary seats should be cut.
The bill, passed by 57 votes in the House of Commons, will now go to the House of Lords, where it will face further scrutiny.
Labour had opposed the bill, arguing that it would be wrong to reduce the number of MPs by 50 to 600.
Under the AV system, voters rank candidates in their constituency in order of preference.
Anyone getting more than 50% of first-preference votes is elected. If no-one gets 50% of votes, the candidate with the fewest votes is eliminated and their backers' second choices allocated to those remaining. This process continues until one candidate has at least 50% of all votes cast.
The Liberal Democrats back a change to AV, but the Conservatives oppose it, and the two coalition partners have agreed that each will campaign for their own preferred system in the run-up to the referendum.
Labour leader Ed Miliband says he will be backing a change to AV in the referendum.
The bill passed its third reading in the Commons by 321 votes to 264.