The controversial move to transfer Franco's remains from the monument was tabled by the new Socialist government and was approved by a vote of 172 in favour and two against.
The vote drew 164 abstentions by lawmakers from the conservative Popular Party and centre-right Ciudadanos.
"Justice. Memory. Dignity. Today Spain takes a historic step... today our democracy has become better," Socialist Prime Minister Pedro Sanchez wrote on Twitter after the vote.
Justicia. Memoria. Dignidad. Hoy #España da un paso histórico para la reparación de los derechos de las víctimas del franquismo. Hoy nuestra #democracia es mejor. El Congreso da luz verde al decreto que permitirá la exhumación de los restos de Franco del Valle de los Caídos. pic.twitter.com/UqOwgxioBs— Pedro Sánchez (@sanchezcastejon) September 13, 2018
Sanchez, who seized power in June after tabling a vote-of-no-confidence in Mariano Rajoy, had vowed to tackle the problem of Franco's grave and transform the Valle de los Caidos into a place of healing and reconciliation.
General Franco, who ruled Spain with an iron fist from the end of the 1936-39 civil war until his death in 1975, is buried in a huge basilica carved out of the living rock on a hillside 50km (30 miles) northwest of Madrid.
It's eerie interior is reached through airport-style security gates past a “museum shop” into a vast vaulted and domed space with black marble floors and walls lined with faded apocalyptic tapestries. Helmeted militaristic statues keep a watchful eye over worshippers and sword-bearing angels stand sentry to chapels dedicated to the armed forces.
The basillica was hewn out of the living rock by Republican prisoners. Photo: AFP
The complex also includes a Benedictine abbey and the monks are still responsible for maintaining the site. Mass is held on Sundays.
A giant granite cross, reaching a height of 150 meters (500 ft) crowns the complex and is visible for miles on a clear day from vantage points in the capital.
It is controversial not least because it was built using the forced labour of political prisoners during the 19 years it took to build.
Republican prisoners were drafted in to dig the site out of the granite mountainside where they lived in work camp conditions on site. Many died during construction before it was finally completed in 1958. Estimates range from 15 (according to regime officials) to 27,000.
It also stirs emotions because within its crypts are contained the remains not only of those solders who died fighting for Franco but also those who were killed by Francoist forces while defending the Republic – an estimated 50,000 corpses in all.
Yet, the only two graves that are marked are those of Franco and Jose Antonio Primo de Rivera, the founder of the far-right Falangist party, whose graves lie either side of the altar and have fresh flowers placed on the tombstones daily.
Franco's tomb is always laid with fresh flowers. Photo: AFP
The site has served as a pilgrimage site for Francoist supporters, who staged annual tributes to the late dictator on the anniversary of his death on November 20, until the Historical Memory Law put a stop to it.
But in recent months, since the Socialist government announced their plans to exhume Franco, it has again attracted visitors to say a final goodbye to El Claudillo and visitor numbers soared over the summer.
Campaigners have lobbied for its destruction, arguing that such a monument to fascism has no place in a modern democracy. Germany, for example, would never allow such a tribute to Hitler.
Relatives of those who died on the Republican side have lobbied for the removal and return of their loved ones remains.
Some have called for the entire site to be blown up while others insist it would be enough if it was transformed into a centre for reconciliation that provided an accurate account of its history.
"We believe that the State is subjecting the dictatorship's victims to a form of mistreatment and humiliation by obligating them to pay through their taxes for dictator Francisco Franco's tomb, which is sustained through public funds," the Association for the Recovery of Historical Memory (ARMH) has told The Local.
The removal of Franco from the Valley of the Fallen more than 40 years marks the culmination of Spain's struggle to remove Francoist legacy and symbolism from public places.
The Historical Memory Law, introduced in 2007 under the socialist government of Jose Luis Rodriguez Zapatero was passed in an attempt to heal the wounds of the past, and banned public symbols that honoured the dictator and his supporters.
While street names have been changed and statues of Franco removed from public squares, the most symbolic memorial of the era has, until now, remained untouched.
This statue of Franco was removed from the city of Santander in 2008. Photo: AFP
In parliament on Thursday, Deputy Prime Minister Carmen Calvo called for the end of the "extraordinary anomaly" of having a former dictator "exalted" in a state mausoleum.
"There will be no respect, no honour, no harmony as long as Franco's remains are in the same place as his victims," Calvo said.
She recalled that parliament had already approved last year a non-binding motion calling for Franco's remains to be removed from the mausoleum but the motion was ignored by the former conservative government of Mariano Rajoy.
Rajoy's government condemned Francoism but had blocked previous attempts to exhume the dictator's bones.
The Socialist government has indicated the body would be exhumed by the end of the year.
Franco's family has fiercely opposed the decision, which has divided Spain and opened old wounds.
The family has said it would if necessary "take care" of Franco愀remains which was taken to mean they will take them to a family vault in Madrid.
Dictator Francisco Franco in his open coffin after his death on 20 November 1979. Photo: AFP
According to deputy PM Calvo, if the family refuses to transfer his remains there, the government will pick a spot to rebury him.
The Francisco Franco Foundation, which receives state funding despite some calls to end it, has pledged to legally fight any moves to exhume Franco's remains.