Shia militia fighters, the Popular Mobilisation Forces (PMF) or commonly known in Iraq as Hashad al-shaabi, were on Saturday given recognition as a military army by Iraq's government.
Iraq's parliament passed the bill which 208 Members of Parliament (MPs) of the 328-seat parliament attended, but was boycotted by Sunni lawmakers.
Osama al-Nujaifi, Iraq's Sunni-affiliated Speaker of Parliament says the move could potentially spread sectarian divisions between Sunnis and Shias in the country.
"Approving the bill would weaken the military establishment by creating another fighting force that is considered sectarian."
He also called for the law to be revised.
"The majority does not have the right to determine the fate of everyone else. There should be genuine political inclusion. This law must be revised."
But, the country's Prime Minister Haider al-Abadi, who is a Shia, welcomed the bill and said the newly-formed Popular Mobilisation Forces Commission (PMFC) "will represent and defend all Iraqis wherever they are."
He added that the PMFC would report directly to him.
Sunni Iraqis, Arabs and rights groups have long been giving evidence and reporting that the Iranian-backed PMF are involved in extrajudicial killings, abuse and the theft or destruction of property in Sunni districts.
The PMF are also viewed with distrust because of its strong links with Iran, a non-Arab Shia country.
Sunni Iraqi Member of Parliament Raad al-Dahlaki voiced his concerns, "I don't understand why we need to have an alternative force to the army and the police. As it stands now, it would constitute something that looks like Iran's Revolutionary Guard."
The move comes six weeks after the start of major operation by the Iraqi government to regain control of Daesh-controlled Mosul.
Iraqi Armed Forces, Kurdish peshmerga fighters and the PMF backed by an international coalition are all fighting together to liberate Iraq's second-largest city.
The PMF last week cut off Daesh's last supply line from Mosul to Syria, officials said.
The development means Iraq's second largest city has been completely isolated and gives Iraq a better chance at liberating Mosul.