The bill increases the period of detention of illegal immigrants for identification from two months to six and makes anyone letting accommodation to them liable to up to three months in jail.
Berlusconi, who claims 76 per cent popular support for the restrictions, said: "We are closing the doors [to immigration] and we will only half open them for those who come to work and to integrate."
A register of homeless people will also be set up under the legislation.
The bill will now go before Itlay's senate, where the government has a comfortable majority.
The immigration provisions have been attacked by parties on the left, who accuse Berlusconi of harking back to the days of Benito Mussolini, the fascist dictator.
Italian bishops have also expressed unease at the measures, which are designed to enable illegal immigrants to be brought rapidly before the courts and expelled from the country.
Italy has rejected criticism of its operation to return to Libya would-be immigrants picked up by Italian vessels outside territorial waters to avoid the responsibility of taking them in.
The policy has been attacked by the United Nations refugee agency, the Vatican and human rights organisations.
Giorgio Napolitano, Italy's president, warned on Thursday against what he said is a "public rhetoric that does not hesitate to incorporate intolerant and xenophobic tones".
Rome has long pressed Libya to better patrol its coasts to prevent the near-daily boatloads of African immigrants from setting off for Europe.
Roberto Maroni, Italy's interior minister, who attended the handover of patrol boats in Gaeta, said: "We have the moral duty, before the right, to fight the traffic of human beings in every way in every form and with every measure."