Justified by officials to protect national security from meddling by foreign-funded charities, the 2017 law restricted NGOs’ activity to developmental and social work, with jail terms of up to five years for non-compliance.
Activists saw it as an attempt to block humanitarian work and the law contributed to a decision by U.S. President Donald Trump’s administration to freeze millions of dollars in military aid to Egypt for nearly a year.
The new legislation, approved overwhelmingly by parliament on Monday, removes the jail penalty and replaces it with fines between 200,000 and 1 million Egyptian pounds ($12,070-$60,350).
As well as ending jail sentences, the changes – which must still be ratified by President Abdel Fattah el-Sissi – enable NGOs to receive money from Egypt or abroad as long as it is deposited in a bank account within 30 days.
The government has 60 days to challenge payments.
Although the new legislation was meant to answer criticisms, 10 Egyptian and international rights groups said last week the impending changes were not enough. They said other laws imposing strict controls on NGOs and civil society also needed revamping.
In 2013, 43 Americans, Europeans, Egyptians and other Arabs were sentenced to jail on charges including operating NGOs without necessary approval. Most were acquitted last year.
A case against domestic NGO workers, more than 30 of whom have been given travel bans and asset freezes, remains open.
“The new draft is but a re-marketing of the repressive law that contains a hostile attitude towards civil society groups,” the 10 groups said in a statement.
“The aim is to calm international public opinion, but the changes are not in line with the constitution or Egypt’s international obligations,” said Mohamed Zaree, Egypt program director at the Cairo Institute for Human Rights Studies.
Charities have long played an important role in feeding, clothing and providing healthcare and education in a country where millions live on less than $2 a day.
Sissi came to power after spearheading, as defence minister, the removal of the Muslim Brotherhood’s Mohamed Morsi as president in 2013.
Under Sissi, Egypt has seen a crackdown on dissent that campaigners say is unprecedented in its recent history.
His backers say tough measures are necessary to stabilize Egypt, which was rocked by years of unrest after protests toppled veteran leader Hosni Mubarak in 2011.