The vote strengthened Chancellor Angela Merkel's center-right coalition, which had struggled to win support from a bloc of rebellious members, and could bolster her ability to negotiate new European crisis measures.
While many investors and experts believe new steps will be required in Europe, such as letting Greece write off more of its debt pile, Germany's approval of the fund's new powers and scope was necessary to avoid a new bout of massive market turmoil.
"The support of the Bundestag is an important step for stabilizing the eurozone," Michael Kemmer, head of Germany's Bank Federation, told the news agency dapd. "With that, they have set a course that leads out of the debt crisis."
The euro440 billion ($600 billion) fund will be able to buy government bonds and lend money to banks and governments before they are in a full-blown crisis, making Europe's response to market jitters more rapid and pre-emptive.
Germany, which pays the lion's share of European bailouts, became the 13th member of the eurozone to support the expansion of the rescue fund, the so-called European Financial Stability Facility, or EFSF. Cyprus also passed the proposed expansion on Thursday.