"The draft law offering amnesty to detainees who are innocent was approved by the cabinet and forwarded to parliament [on Wednesday]," said Sadiq al-Rikabi, an adviser to Prime Minister Nouri al-Maliki, Agence France-Presse reported.
Mowaffaq al-Rubaie, Iraq's national security adviser, said earlier this month that the draft law was aimed at improving reconciliation between majority Shiite and minority Sunni Muslims, according to Reuters.
Thousands of detainees, mostly Sunni Arabs, are being held without formal charges. Most have been detained for more than a year on suspicion of backing the insurgency opposed to the central government and American forces.
The mass detentions have been blamed for fueling animosity between the Shiite and Sunni communities in Iraq. The U.S. military, looking to bolster its growing alliance with some Sunni groups, has strongly advocated a formal release effort.
But detentions in both U.S. and Iraqi jails have soared since military operations were stepped up this year. According to recent reports, Iraqi authorities hold 24,000 detainees and U.S. forces have 26,000. Only a small proportion of those held are ever prosecuted.
"The law will cover as many number of detainees as possible" who are not found to be guilty, said Sadiq al-Rikabi, an adviser to Prime Minister Nuri al-Maliki, adding that some of the detainees include those held for corruption and other financial crimes, AFP reported.
The U.S. military, which holds its detainees at Camp Cropper near the Baghdad airport and Camp Bucca near the southern port city of Basra, has said it intends to free most of its detainees by the end of next year.
The move by Iraq's parliament comes as American military and diplomatic officials expressed cautious optimism that 2008 may be less violent than 2007.
"It is pretty clear that 2007 comes to an end in Iraq with Iraq as a substantially better place than where we began the year," U.S. Embassy spokesman Phil Reeker told reporters.