The latest legislation, part of his Agenda 2010 reforms programme has seen Schroeder repeatedly stake his political future on winning a majority of votes from his own centre-left government of Social Democrats (SPD) and Greens.
Friday’s vote was so important to the chancellor that he took the rare step of asking French President Jacques Chirac to stand in for him on the second day of an EU summit in Brussels so he could attend the ballot.
After the vote, Schroeder warned the opposition Christian Union against using its majority in the Bundesrat upper house of parliament to block the measures.
"I am confident that the Union majority in the Bundesrat understands its responsibility for all this and will not sacrifice the future of our country for partisan reasons," he told reporters.
The approved plans will tighten welfare benefit requirements for the jobless as an incentive for them to find work.
They will also bring forward income tax cuts by one year to 2004, raise tobacco taxes, offer amnesty to tax evaders who now pay up and slash subsidies for commuters and homebuilders.
"It must be the main goal of the opposition to end this government as soon as possible"
Christian Democrat Party
Economy and Labour Minister Wolfgang Clement urged deputies ahead of the ballot to pass the jobs package with a strong majority to help drive down the unemployment rate, which is hovering above 10%.
"We need to achieve a new way of thinking about employment policy," Clement said.
"Those who reject acceptable jobs offered to them cannot expect to receive public support."
The opposition's demands for changes to the legislation before it can be ratified by the Bundesrat promise to create a catch-22 situation for Schroeder, who spent weeks securing the support of his own coalition on the reforms.
Any changes made by deputies to appease the opposition will run the serious risk of alienating a significant part of the ruling coalition in the Bundestag, which must rubber stamp the final compromise bill in December.
Schroeder has been dogged by a
struggling German economy
The conflict has the potential to produce a full-blown government crisis.
The government, which only has a nine-seat majority in the Bundestag, was forced to water down some aspects of the draft laws this week to avert a rebellion by members of the left wing of the SPD and the Greens during the vote.
While the unions, traditional allies of the SPD, accuse the government of punishing the jobless with the reforms, the opposition has said they do not go far enough to tackle the structural problems in the employment market.
The premier of the western state of Hesse, prominent Christian Democrat Roland Koch, accused the government of only tinkering with its deeply flawed jobs policy.
'Bolting shut' opportunity
He said the measures would not open the labour market but rather "bolt it shut".
In an interview published Friday in the Leipziger Volkszeitung, Koch urged the Christian Union parties to unite to topple the Schroeder government.
"It must be the main goal of the opposition to end this government as soon as possible," Koch said.
"At a time when the government is as fragile as it is, that means for the Union: we must be true to our principles and present a crystal-clear opposition."
The conservative opposition is currently scoring about 50% in opinion polls, nearly double the SPD level of support.