Ireland is set to become the first country to stop public investments in fossil fuels.
The Fossil Fuel Divestment bill was passed by the lower house of parliament, Dáil Éireann, on Thursday.
The bill is expected to pass relatively quickly through the Seanad (senate), and will force the Ireland Strategic Investment Fund to end any investments in non-renewable energy in five years.
Environment activists have welcomed the news.
The ISIF is worth €8.9bn (£7.9bn; $10.4bn), of which more than €300m is invested in oil, gas, coal and other fossil fuels, according to Ireland’s Catholic development agency, Trócaire, which supported the bill.
Responding to the vote, Trócaire said that Ireland had “made history”, adding it hoped that the law would come into force by the end of the year.
The new legislation is intended to help ensure Ireland meets its commitments under the Paris Agreement, which was the first deal to unite the international community in tackling climate change.
US environmentalist Bill McKibben praised the passing of the Irish bill, which he described as a “landmark” moment.
Ireland was ranked 49 of 59 countries in the 2018 Climate Change Performance Index, and was the lowest EU member on the list.
The report found that it is one of the few European countries not on course to meet its emission reduction targets for 2020 and had described its current use of renewable energy as “insufficient”.