Lower House Speaker Laura Boldrini hailed the vote.
"The House today helped bring down a wall, at a time in which walls are sadly becoming popular again...it brought down a barrier that has kept so many young and very young new Italians separate from their play and schoolmates," she said.
MPs from the rightwing anti-immigrant Northern League, which opposes the reform, shouted "shame" at the outcome while members of Premier Matteo Renzi's centre-left Democratic Party (PD) applauded. The bill now moves to the Senate.
The reform would grant citizenship to babies born in Italy of foreign parents if at least one of the parents has a long-term permit of stay.
Foreign children born in Italy or who enter Italy before their 12th birthday would also be allowed to apply for citizenship once they have attended Italian schools for at least five years.
Vincenzo Spadafora, head of Italy's authority for children and adolescents, expressed his "satisfaction" over the approval of the bill at first passage. "It certainly represents a substantial step forward in terms of civilization for a country such as ours, which can no longer overlook the fact that these girls and boys are already de facto Italians," Spadafora said. Organisations supporting the bill also hailed its approval by the Chamber but called attention to remaining "critical areas" that the Senate would now have to address.