The vote clears the path for Olmert to bring in hard-liner Avigdor Lieberman and his Yisrael Beiteinu party to the coalition government ahead of votes that include the state budget.
In the past, Lieberman has called for the bombing of Iran, Egypt and Palestinian population centres, as well as drawing Israel's borders to exclude most of its Arab citizens.
The Labour party endorsed its leader, Amir Peretz, the defence minister, who said that it was better to stay in government to influence policy than to wither away in the parliamentary opposition.
Peretz said: "We're talking about a man with a world view that is extreme, clear and infuriating. We will stay (in the government) in order not to let these views be realized."
Opponents, led by Ophir Pines-Paz, the cabinet minister, argued that Labour would be committing electoral suicide by sitting at the same cabinet table with Lieberman.
Labour has traditionally favoured compromise toward peace with the Palestinians.
Pines-Paz, the culture, science and sports minister, was expected to resign from the cabinet. Arab members of the party were also considering an exit.
Peretz dismissed his critics. "I don't need anyone to preach to me about my loyalty to peace. I certainly don't need anyone to preach to me about principles of human dignity and equality."
Olmert is expected to convene a cabinet session this week to approve the addition of the Yisrael Beiteinu party.
Olmert's original coalition had a seemingly comfortable majority of 67 seats in the 120-seat parliament, but Labour itself disrupted the equation when several of its MPs said they would vote against the budget.
If the Olmert government fails to pass a budget by the end of March, it must resign.
With Lieberman's 11 seats, the coalition's strength is boosted to 78 seats, and a mini-rebellion by some of the 19 Labour party MPs would not bring down the government.