Brazil's Chamber of Deputies has voted to ease restrictions on the amount of land farmers must preserve as forest.
The amended law also grants some amnesties for previous deforestation.
Supporters say Brazil needs land to boost agricultural production, while environmentalists say destruction of the Amazon rainforest will increase.
Wrangling over the final bill is likely, as Brazilian President Dilma Rousseff indicated she would veto any bill that contained an amnesty.
After months of at times acrimonious debate, the Chamber of Deputies voted to overhaul the Forest Code, as the legislation is known.
Under the current law, 80% of a farm in the Amazon must remain forested; in other areas, the requirement is lower, falling to 20%.
However, in practice, the legislation has not been widely enforced. It is estimated that 20% of the Amazon, the world's biggest rainforest, has been cleared, mainly as a result of logging and farming.
Under the new bill, small-scale landowners, who make up the majority of Brazil's farmers, will be exempt from having to replant deforested land.
Other changes include:
- allowing the use of previously excluded areas such as hilltops and slopes for some kinds of cultivation
- reducing the amount of land that must be left intact along the banks of rivers and streams from 30m (100ft) to 15m (50ft)
- allowing farmers to count forest alongside rivers and lakes on their land as part of their conserved area, so reducing the total amount of land they need to protect or reforest
One of the most controversial elements grants farmers with land of up to 400 hectares (990 acres) an amnesty if they illegally cut down forest before July 2008.
The legislation must now go to the Senate and then to President Rousseff.
Her spokesman said she would veto any legislation that included the amnesty.
The changes were proposed by Aldo Rebelo form Brazil's Communist Party (PCdoB), who argued that the existing rules prevented small farmers from making best use of their land to lift themselves out of poverty.
Farmers' groups backed the changes, saying Brazil, as one of the biggest exporters of soy, beef and sugar, needed to boost food production in times of high commodity prices.
"None of the world's large farm producers that compete with Brazil - the United States, Europe, China, Argentina and Australia - obliges its producers to preserve any forest," the National Agriculture Confederation (CNA) said.
Philip Fearnside of the National Institute of Amazon Research said the amnesty would "legalise the illegal".
"People believe they can deforest illegally because sooner or later all will be forgiven," he told the Associated Press.
But CNA Vice President Assuero Veronez said the changes would not increase deforestation.
"We do not have to cut down one single tree. We can increase agricultural output in already deforested areas," he told AP.
In the 1960s and 1970s, Brazil's then military government encouraged people to settle in the Amazon as a way of boosting economic development.
Over the past decade, authorities stepped up monitoring and the enforcement of laws, leading to a significant drop in the rate of clearance.
However, last week satellite images showed that deforestation had increased nearly sixfold in March and April compared with the same period last year.
Much of the destruction has been in Mato Grosso state, the centre of soya farming in Brazil.