The legislation adopted by the state assembly creates a tribunal empowered to process claims for alleged losses resulting from violations of environmental regulations.
The Palakkad bottling factory in Kerala was closed in 2005 after protests from activists and residents.
A high-level state panel concluded last year that the plant had caused environmental and soil degradation as well as water contamination, and recommended a fine of 47 million dollars.
Coca-Cola denied all the allegations.
Reacting to the new bill, the company's Indian subsidiary, Hindustan Coca-Cola Beverages (HCCB), said it was "disappointed" and that it had been denied the opportunity to share independent data before the bill was introduced.
"This bill is devoid of facts, scientific data or any input from or consideration given to HCCB," it said in a statement.
"The government's decision to proceed with no regard for facts or real data sets a dangerous precedent," it added.
The bill adopted by the state assembly states that the plant's functioning had led to drinking water scarcity and a decline in agriculture due to disposal of sludge which contained metals like cadmium, lead and chromium.
It said the sludge disposal also affected health, with local residents complaining of skin ailments and breathing problems.
"There was a clear sense that Security Council members want to continue the momentum in terms of the strong unanimity that the council has to address this violence," said another Western diplomat, speaking on condition of anonymity.
The European Union and United States have already threatened sanctions against Libya.
China and Russia, two of the five permanent Security Council nations with veto powers, traditionally resist sanctions against sovereign countries, but a Chinese diplomat said his country was ready to "consider" further action.
China has taken a tougher line on Libya as it has had to move thousands of nationals out of the strife-torn nation.
Russia has said the the use of force against civilians in Libya is "unacceptable," but Prime Minister Vladimir Putin also warned the West against interfering in other countries' internal affairs.
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