Under the law, courts can hand out death sentences to anyone found guilty of setting up, participating in or managing any group with the intention of committing terrorist acts.
The law, ratified by UAE President Zayid bin Sultan Al Nuhayyan, describes as "terrorism" any act that spreads terror or harms the public or heads of states or government officials or that which seeks to destabilise the general order or society.
Imprisonment for life or shorter periods would be passed on anyone guilty of aiding terrorist groups with funds, weapons or shelter either inside or outside the UAE and anyone guilty of receiving military or security training by terrorist groups.
The UAE, whose population is 85% expatriate, has arrested religious fighters in the past but has been spared attacks that have rocked other countries in the region.
The UAE said in 2002 it was responsible for arresting Abd-al-Rahim al-Nashiri, identified as al-Qaida's chief in the Gulf, and handing him over to Washington, which blames al-Qaida for the September 11 incidents.
This year it would also issue new laws to combat what the US also calls "terror financing". Its financial laws came under US scrutiny when it admitted that some of the September 11 hijackers had moved cash through UAE firms.