Conservation Minister Kate Wilkinson said the number of freedom campers had doubled in the past decade to 150,000, and the number of complaints about their polluting picnic spots had grown in areas such as Queenstown more than fivefold.
But concerns have been raised that the new law will capture outdoors-lovers who head away on a Friday night and camp on the roadside before a weekend of hiking, mountaineering, fishing or hunting.
The act defines freedom camping as camping within 200m of a road, road end or the low-water line of the sea or harbour.
Exemptions include "temporary and short-term parking", day-trip excursions and resting or sleeping in a car.
During the third-reading debate, Labour MP Damien O'Connor said the new law would cut across the best of Kiwi traditions.
Most people who loved the outdoors knew how to look after it, he said.
"These people know the outdoors, they know what to do, they probably have a shovel in their car, they probably know where to go to the toilet, but no, the poo police will be knocking on their door, or their tent, or their campervan, saying, 'Not allowed to camp here. There'll be an instant fine in the mail'."
The legislation's aims could have been achieved with more education and more public toilets, Mr O'Connor said.
But National MP Cam Calder said Labour was underestimating the issue.
"I don't feel they understand the full magnitude of the problem of indiscriminate defecation in our areas of outstanding natural beauty," Dr Calder said.
"Who wants to step out of their van into a pile of steaming human waste?"
The legislation was amended yesterday to include a provision designed to deter international visitors from polluting the countryside and leaving without paying fines. Rental car companies will be able to charge the credit cards of clients if they are fined.
The bill was passed by 67 votes to 53, with National, Act, the Maori Party and United Future voting in favour.
NEW RULES PACK A PUNCH
* Local authorities will be able to ban freedom camping, defined as camping within 200m of a road, road end or the low-water line of the sea or harbour.
* Freedom camping in these spots could lead to an instant $200 fine; more serious breaches could incur a $10,000 fine.
* Making preparations to freedom-camp where it is banned could incur a $200 fine, as could damaging any area, or dumping waste inappropriately.