The bill, which sets fines or a maximum three-year jail term for anyone who refers to Nazi German death camps as Polish or accuses Poland of complicity in the Third Reich's crimes, was approved by 57 votes to 23 in the upper house of parliament, with two abstentions.
Israel had earlier called for the bill to be dropped, seeing one of its provisions as an attempt to deny Polish involvement in Nazi Germany's extermination of Jews.
"We have no tolerance for the distortion of the truth and rewriting history or denying the Holocaust," Israeli Prime Minister Benjamin Netanyahu said Sunday.
The lower house of parliament, which like the senate is controlled by the governing right-wing Law and Justice (PiS) party, had passed the bill on Friday -- triggering the protest from abroad.
Knesset lawmakers penned a proposed bill of their own Wednesday amending Israel's law regarding Holocaust denial, so that diminishing or denying the role of those who aided the Nazis in crimes against Jews would be punishable with jail.
Before the vote on the Polish bill, US State Department spokeswoman Heather Nauert expressed "concern" that "if enacted this draft legislation could undermine free speech and academic discourse".
"We are also concerned about the repercussions this draft legislation... could have on Poland's strategic interests and relationships ?- including with the United States and Israel," she added.
To take effect, the legislation still needs to be signed by Polish President Andrzej Duda, who has 21 days to do so.
In theory he could veto the bill but on Monday he said: "We absolutely can't back down, we have the right to defend the historical truth."
He added that he was "flabbergasted" by Israel's "violent and very unfavourable reaction".
Poland was attacked and occupied by Nazi Germany in World War II, losing six million of its citizens including three million Jews.
Helping Jews, even offering them a glass of water, was punishable by death in occupied Poland.
More than 6,700 Poles -- outnumbering any other nationality -- have been honoured as "Righteous Among the Nations", a title given to non-Jews who stood up to the Nazis, by Jerusalem's Holocaust memorial Yad Vashem.
Yad Vashem said it opposes the Polish bill, as it "is liable to blur the historical truths regarding the assistance the Germans received from the Polish population during the Holocaust".
But it added that to refer to the extermination camps the Nazis built in Poland as Polish is "a historical misrepresentation".
American Jewish Committee CEO David Harris urged Polish leaders "to withdraw the legislation and focus on education, not criminalisation, about inaccurate and harmful speech".
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