The state's Assembly passed Republican Gov. Scott Walker's explosive proposal 53-42 Thursday. The state's Senate approved it the night before after using a procedural move to bypass its AWOL Democrats.
Walker says he'll sign the legislation as quickly as possible.
The vote brings a swift end to a standoff over union rights that has rocked Wisconsin and the nation. Tens of thousands of protesters have converged on the state's Capitol for weeks of demonstrations.
The implementation of Walker's proposal will be a key victory for Republicans who have targeted unions amid efforts to slash government spending.
Earlier in the day, tempers rose in Madison as protesters swarmed the state capitol. Police closed the building and forcibly removed demonstrators who refused to leave.
Joining the protesters was Reverend Jesse Jackson. He accused the governor of using workers as scapegoats for the budget problems.
"He has the mindset and that mindset is that workers are the problem. He does not see in his mind's eye the role of workers," said Jackson.
Gov. Walker said the senate took action Wednesday after talking to three non-partisan agencies that provide counsel to both Republicans and Democrats.
In addition to stripping workers of their bargaining rights, public employees will also have to pay nearly 6 percent more for their pensions and an additional 12 percent for their health premiums.
"The overwhelming message I've heard from the people of the state is get it done, let's move on, let's get this passed. We think what you're asking for in the 5 and 12 percent makes sense. Let's find a way to get it done," said Walker.
Wisconsin Assembly speaker Jeff Fitzgerald called it a tough vote, but said it was the right thing because people are "sick of the status quo." But the White House called it an assault on public employees.
Republican state senators were able to use a tactic to approve the measure without Democrats who have been in Illinois.
Those self-exiled Democratic state senators planned their next move as the measure to strip away the collective bargaining rights of most public employees moved one step closer to becoming the law.
"I think it's sad for employees in the senate and the Assembly, majority Republicans, that they would steal democracy from the people," said Sen. Spencer Coggs (D), Wisconsin.
Lawmakers in the Wisconsin Assembly finally convened Thursday afternoon after protests caused a temporary lockdown and security sweep of the Capitol.
Union leaders called the vote, which ended the three-week long stalemate over the fate of collective bargaining rights, an attack on organized labor.
Meanwhile, Kenosha, Wis., kindergarten teacher Anne Knapp wonders if she will be able to survive paying more toward her pension and health benefits.
"It's going to be tight. Things are already so tight. I could possibly lose my house," said Knapp.
A similar scene unfolded in Indiana Thursday as thousands rallied against Indiana Republicans for what they called an attack on public education and unions. Many Indiana Democrats are in Illinois attempting to derail the Republican proposals.
The Associated Press contributed to this report.