Even though MPs can still reject aspects of the bill in voting due later this week, the clear margin of 188 votes for and 45 against in Sunday's session is likely to be welcomed by the government of President Mahmoud Ahmadinejad.
If the draft law is approved without major changes, it would be a further sign of the hardline president consolidating his position after his disputed re-election in June plunged Iran into months of political turmoil.
The government wants to raise energy and utility prices and compensate low-income families with direct cash payments.
Critics say this would push up inflation, now running at about 13 percent annually after it hit a high of nearly 30 percent a year ago.
In March, MPs dealt a political blow to Ahmadinejad by removing the subsidy reform plan from the 2009-10 budget bill. He accused them of violating the constitution.
Defending the proposal on Sunday, Economy Minister Shamseddin Hosseini told MPs that hefty fuel subsidies mainly benefited the wealthy, not the poor.
"One third of the country's income is paid out as subsidies, either openly or in a hidden way, and there is no doubt that these resources are not spent correctly," he said.
FUEL SANCTIONS?
"Are these subsidies going to groups about whom we have worries? The affluent part of the society uses up the subsidies several times more than the needy," Hosseini added.
He also rejected criticism that the government's bill would fuel price rises, saying that making subsidies targeted would "dry the roots" of inflation.
It was not immediately clear if the government had made any substantial changes before returning the proposal to parliament after the setback earlier this year.
MP Ali-reza Mahjub, one of those arguing against the reform plan, said: "We have to refer to it as the bill of raising prices instead of making subsidies targeted."
He added: "They want to tie our economy to the global economy. This would take place under such conditions that we are not enjoying its advantages."
Iranian motorists have traditionally enjoyed some of the cheapest petrol in the world, but the government introduced rationing of heavily-subsidised fuel two years ago as part of plans to cut energy subsidies. Natural gas and electricity consumption are also subsidised by the state.
"We are not after elimination of subsidies. We are after making payments targeted and fair with the aim of helping productivity," said Hosseini, the economy minister.
Iran is the world's fifth-largest crude oil exporter, but it lacks sufficient refining capacity to meet its domestic fuel needs and has to import up to 40 percent of its gasoline requirements, burdening state coffers.
This makes it potentially vulnerable for tougher Western sanctions, as the United States and its European allies explore ways of targeting fuel imports into Iran if it continues to press on with its nuclear programme.
The West suspects the Islamic state is covertly seeking to develop nuclear weapons, although Iran has vehemently denied it.
Ahmadinejad, who came to power in 2005 pledging to share out Iran's oil wealth more fairly, has argued his subsidy reform bill would help "implement justice and remove discrimination".
During his first four-year term, opponents accused the government of profligate spending of petrodollars when oil prices were soaring until mid-2008, diminishing Iran's room for manoeuvre once they started sliding.
(Editing by Simon Jessop)
