California Governor Arnold Schwarzenegger, frustrated by lack of action from fellow Republican President George W Bush on reducing heat-trapping gases, teamed up with the state's Democratic majority on the landmark bill.
The bill cleared its last legislative hurdle in the State Assembly in a 46-31 vote, with opposition from Schwarzenegger's own Republican Party.
The Senate voted to pass it 23-14 and governor Schwarzenegger plans to sign it next month.
The Global Warming Solutions Act of 2006 puts California at the forefront of the fight against climate change along with the European Union, and increases pressure on Washington to impose mandatory caps rather than the voluntary measures favoured by Bush.
California aims to reduce its emissions to 1990 levels by 2020, a cut of around 25 per cent. The biggest sources of heat-trapping gases, such as power plants and cement makers, will be required to report their emissions.
The state is the world's 12th-largest producer of greenhouse gases like carbon dioxide and faces potentially serious concerns over its drinking water, coastline, agriculture and air quality because of the rise in temperatures.