The approved deal requires Israel to pay $20 million in damages to the families of the 2010 flotilla raid victims.
Turkey's parliament late Friday approved a deal for Israel to pay compensation for victims of the 2010 Mavi Marmara tragedy.
The deal requires Tel Aviv to pay $20 million to the families as part of a normalisation agreement between the two countries secured last month after a six-year hiatus in ties.
The sum will be transferred in a one-time deposit to a bank account opened by Turkey and shared through diplomatic channels, and the transaction will be completed within 25 business days of the bilateral agreement coming into force.
Earlier this month, Turkish Prime Minister Binali Yildirim said that all of Ankara's preconditions for normalising ties were met by Tel Aviv.
Ties were severed in 2010 after Israeli commandos stormed a Gaza-bound Turkish aid vessel in international waters.
Nine Turkish activists were killed and another 30 were left injured as a result of the attack.
One of the injured succumbed to his injuries almost four years later.
In the aftermath of the attack, Turkey demanded an official apology from Israel, compensation for the families of those killed and the lifting of Israel's Gaza blockade.
In 2013, Israeli Prime Minister Benjamin Netanyahu voiced regret over the incident to Turkey's then-prime minister (now president), Recep Tayyip Erdogan.
In addition to the compensation, Israel has agreed to Turkey's humanitarian presence in the occupied Gaza Strip.