The amendments were supported unanimously by the 90 MPs who were present.
They stipulate that loans that have a term of up to 30 days and which are to be returned within a single payment will be capped at a maximum of 50% of the minimum wage or €215.
Payday loans are often extended for a set fee, and the new amendments cap the maximum times they could be extended at two. It will not apply to cases where a payment schedule to return the loan will be offered to the client.
The maximum interest rate will be reduced from the current 200% a year to about 60% a year.
Advertisements will also be restricted heavily, and lenders will have to review the client's other obligations more carefully.
Ad restrictions will apply starting July 1, 2019 while the other amendments will apply from January 1, 2019.
Latvia's Consumers Rights Protection Center earlier voiced support for capping interest rates, saying similar measures have been adopted in Estonia where they have not substantially affected the market.
Meanwhile Gints Āboliņš, the head of an association representing most of Latvia's non-bank lenders told Latvian Radio on October 4 that the restrictions are "more like an election campaign", and criticized what he saw as a lack of discussion about the new regulation.
He said the industry will consider turning to the president asking not to promulgate the law.
The amendments were also criticized by the Latvian Broadcasting Association, which said that the ban on advertisements will not meet its goal, seeing as Latvia can't limit the ads appearing on private channels registered abroad.
The payday loan industry enjoys a considerable lobby in Latvia. Any measures to further regulate the business are met with stiff resistance.
In one instance, famous sports stars spoke up against proposed regulation after a payday lender said they might cut sponsorship in response to tighter rules.