MPs will have now have their own conscience vote to show whether they support or oppose the expansion of stem cell research after the controversial bill passed the senate 34 votes to 32 last night.
The debate had been expected to last a week but finished after two days of intense and emotional discussion.
A successful, last-minute amendment to the legislation by the Australian Democrats specifically ruled out animal-human hybrids.
Another increased from 10 to 15 years prison sentences for flouting safeguards designed to prevent abuse of embryonic cloning.
The additional safeguards will only come into effect if the bill gets the final go-ahead from the parliament.
Former health minister Kay Patterson, who introduced the private member's bill, hoped future generations may benefit from any extension of the research.
Senator Patterson said she was conscious of the fact that many people suffering from debilitating diseases now would not see the benefits of stem cell research, but she hoped future generations would.
"I've done what I needed to do," she said.
Australian Democrats Senator Natasha Stott Despoja, who had introduced her own bill to have the research expanded, was overjoyed by the Senate vote.
"This is the happiest day of my parliamentary life," said the senator who will not contest the next election.
"We avoided a Luddite moment, we have done the right thing and created the opportunity for great research to be undertaken."