Protesters wearing masks or covering faces during demonstrations will face one year of imprisonment and €15,000 ($17,200) fine, according to the bill.
The French National Assembly also approved local governors to prohibit the participation of those who pose a threat to public order in demonstrations.
Those who violate the restriction and participate in protests despite the ban could face six months in prison and €7,500 ($8,600) fine.
While President Emmanuel Macron's party, which has a large majority in parliament, backed the "anti-hooligan" bill during the vote, leftist opponents accused the government of impinging on civil liberties.
The draft law backed by Prime Minister Edouard Philippe earlier this month, proposed stricter punishments for activists, including imprisonment, fines and protest bans, is expected to secure approval next week.
It is expected that the government will stiffen its stance against the Yellow Vest protestors across the country through the bill.
Council of Europe Commissioner for Human Rights Dunja Mijatovic stressed Wednesday that it should not lead to any restrictions on freedom of expression or peaceful assembly, as well as the right to liberty and security.
"The high level of tension currently prevailing in France is causing me concern and I consider it urgent to calm down the situation," said Mijatovic.
The Yellow Vest protests, which started as a reaction to fuel tax hikes and evolved into a protest against Macron, have continued despite government calls for them to halt.
Since Nov. 17, thousands of protesters wearing bright yellow vests have gathered in French cities, including Paris, to protest Macron's controversial fuel tax hikes and the country’s deteriorating economic situation.
Demonstrators held protests blocking roads as well as the entrances and exits to gas stations and factories across the country.
Under pressure, Macron announced a rise in the minimum wage and scuttled the tax hikes.
Since then, the protests have grown into a broader movement aimed at tackling income inequality and are calling for giving citizens a stronger voice in government decision-making.
At least 10 people have died in the protests, around 6,000 have been detained, and over 2,000 others have been injured.
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