In a vote of 85-12, lawmakers from both parties reversed decades-old U.S. policy forbidding the United States from trading nuclear material with countries that have not signed the nuclear nonproliferation treaty, or NPT.
The plan has been condemned by critics as a setback in international nonproliferation efforts.
In a statement from Vietnam, where he is holding trade talks with top Asian leaders, President Bush praised lawmakers for the vote, the Associated Press reported.
This "will bring India into the international nuclear nonproliferation mainstream and will increase the transparency of India's entire civilian nuclear program," the president said.
The deal, titled the U.S.-India Civil Nuclear Cooperation Initiative and signed by President Bush and Indian Prime Minister Manmohan Singh in February, allows the United States to ship nuclear technology and fuel to India for use in civilian power plants.
In exchange, India would open 14 of those plants to inspection by the International Atomic Energy Agency. The country's eight military facilities would remain off-limits.
Supporters say such a deal would not only create more jobs for Americans in the nuclear industry, but would make India a partner in the international nonproliferation community.
India has previously tested two nuclear bombs -- one in 1974 following the delivery of two light water reactors from the United States under a peaceful deal -- and a second in 1998. The country also has been sanctioned in the past by the United States for failing to maintain adequate security standards in its military program, according to Robert Einhorn, former secretary of state for nonproliferation during the Clinton administration.
But, the deal is intended to reward India's new role as a responsible nuclear power.
This is a "major shift in U.S.-Indian relations," Sen. Joe Biden, D-Del., said Thursday, according to the AP. "If we are right, this shift will increase the prospect for stability and progress in South Asia and in the world at large."
Critics, on the other hand, see the plan as a way for India to build more nuclear weapons by using the additional U.S. fuel to supply its civilian program, while stockpiling its own limited amounts of uranium for military use.
They also say the plan rewards a nation that has previously failed to submit to inspections, sending the wrong message to places like Iran and North Korea, two countries currently at odds with the West over their nuclear programs.
"I believe one day we will look back at this with great regret," Sen. Byron Dorgan, D-N.D., said. The move is a "horrible mistake" that "provides a green light" for India to produce more nuclear weapons, he said.
Some lawmakers, who opposed the bill's passage, tried unsuccessfully to impose conditions on the plan. Sen. Barbara Boxer, D-Calif., proposed requiring that India cut off military ties with Iran, a move that would prevent the spreading of nuclear technology to unfriendly countries.
Other obstacles still could throw the bill off course.
The Senate must now reconcile its version of the final bill with a House version that passed in July. The combined bill would then go to President Bush for his signature. Those steps should take place by January, the AP reported.
Following passage in the United States, the Nuclear Suppliers Group, an international body of nuclear material exporting nations, must also sign the plan before any trading begins.