The bill, which is partly aimed at tackling Islamist radicalism, gives Muslims more legal security but bans foreign funding for mosques and imams.
Austria's Integration Minister, Sebastian Kurz, defended the reforms but Muslim leaders say they fail to treat them equally.
The 1912 law made Islam an official religion in Austria.
It has been widely held up as a model for Europe in dealing with Islam.
The new measures, first proposed three years ago, include the protection of religious holidays and training for imams.
But Muslim groups say the ban on foreign funding is unfair as international support is still permitted for the Christian and Jewish faiths.
They say the legalisation reflects a widespread mistrust of Muslims and some are planning to contest it in the constitutional court. [BBC] Read more
