It also drops the death penalty for sex outside of marriage. The offence would now be punishable with five years in prison or a fine equivalent to $165.
Human rights activists have long condemned Pakistan's rape laws for punishing rape victims while providing legal safeguards for their attackers.
"This is a step in the right direction," Hina Jillani, a vice-chairwoman of the Human Rights Commission of Pakistan, said of the new law.
Thousands of religious conservatives rallied against the changes at several protests around the country.
Under the new law, judges can choose whether a rape case should be tried in a criminal court, where the four-witness rule - known as the Hudood Ordinance under Islamic law - would not apply
Send us your views
Islamists gathered by the hundreds at separate events in the southwestern city of Quetta, the eastern city of Lahore and the city of Rawalpindi, just south of the capital Islamabad.
Opposition leader Qazi Hussain Ahmed, head of a six-party coalition of Islamic groups known as the Mutahida Majlis-e-Amal, or United Action Forum, said Musharraf was encouraging an alien culture at the behest of America and Western Europe.
"I call on all people to prevent Musharraf and his team from wrecking Muslim society," Ahmed told nearly 1,000 demonstrators in Rawalpindi.
Ahmed said the new law would only fuel public anger against Musharraf's ruling party ahead of National Assembly elections next year.
"Their days are close to finished," he said. "The struggle has already started."
International and local calls for change in Pakistan’s rape laws intensified after the 2002 gang-rape of a woman, Mukhtar Mai.
Mai was assaulted after a tribal council in her eastern Punjab village ordered that she be raped as punishment for her 13-year-old brother's alleged affair with a woman of a higher caste.