The Senate approved by voice vote on Tuesday the pact that would immediately remove tariffs on consumer and industrial sales between the two countries and provide duty-free access to 98% of US agriculture exports.
The House of Representatives already passed the bill to implement the agreement this month. It was signed between the two governments last year, and now goes to President George Bush for his signature.
With that, Bahrain, an oil-refining and banking island of fewer than 700,000 people, will join 13 other nations including the North American Free Trade Agreement countries of Mexico and Canada and the five countries of the Central America Free Trade Agreement, with which the US has agreed to free trade relations.
The bill now goes to President
George Bush for his signature
Bilateral trade with Bahrain is less than $1 billion a year, but the kingdom has been a steady political friend, supporting the US in the two Iraq wars and hosting the US Navy's Fifth Fleet command.
Senator Max Baucus of Montana, top Democrat on the Senate Finance Committee, said: "This is an agreement that strengthens our ties with a stalwart ally in a troubled part of the world."
Charles Grassley, committee chairman, said the bill would open access to US service providers in Bahrain, already a major centre for service markets in the Middle East.
He said: "This trade agreement is a clear win for the US economy".
Middle East free trade
The administration has set a goal of establishing a Middle East free trade area by 2013 as a way of promoting prosperity and democracy in the region, and has hailed the Bahrain pact as a step in that direction.
A Bush administration statement read: "[The agreement] provides an important opportunity to encourage economic development in a moderate Muslim nation that is a leader of reform in the Gulf region".
Within the region, the United States has free trade agreements with Israel, Jordan and Morocco and recently concluded an agreement with Oman.
"[The Bahrain accord will] promote democracy, prosperity and hope in the Middle East"
US Trade Representative
Rob Portman, US trade representative, said: "[The Bahrain accord will] promote democracy, prosperity and hope in the Middle East".
There was little debate in the Senate and only minor opposition in the House to the Bahrain deal, in sharp contrast to a bitter battle last summer over the Central America Free Trade Agreement and past debates about trade with China.
With the US trade deficit approaching $700 billion a year, many Democrats and some Republicans, worried about local industries at home, argue that free trade agreements, particularly with less developed countries, has accelerated the flight of American jobs overseas.