Swiss People's Party win anti-immigration referendum
A majority of voters backed a proposal to cap immigration from EU member states in the landmark poll, held two years ago.
But MPs today defied the will of the people by voting against placing any cap on EU migrants.
It came after fears the country, which is part of the European Free Trade Association, could lose its access to the single market.
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They have instead agreed that unemployed domestic workers should have an advantage over EU nationals when applying for jobs.
But the Swiss People's Party attacked the compromise, calling it an "unprecedented breach" of the country's constitution.
And it accused other parties of caving in to Brussels and shirking their duty to stand up for Swiss sovereignty.
Activists protest Swiss migration policies in border town
Nearly 1.4million EU citizens live in Switzerland and another 365,000 commute in from neighbouring countries.
Passage of the law clears the way for Switzerland to extend free movement to the latest EU member state, Croatia.
The EU will then give Switzerland access to its Horizon 2020 programme, which funds research projects.
We say the law appears to go in the right direction
European Commission spokesman Margaritis Schinas welcomed the MPs' decision.
He said: "Today the result of the parliamentary process is known. At first sight, we say the law appears to go in the right direction.
"It is a good sign that the law is not intended to impose quotas on the free circulation of EU citizens."
Eurocrat Jean-Claude Juncker is set to meet Swiss President Johann Schneider-Ammann today discuss the next steps.
A joint EU-Swiss committee meeting is planned for December 22.
The UK government did not comment on the decision, which could have major repercussions for Theresa May's bid to slash migration after Brexit.