Researchers faced opposition from ethical campaigners who found the idea of mixing the DNA of humans and animals unacceptable.
However, Health Minister Dawn Primarolo has given the scientists the go ahead signal.
The new Bill also includes three more types of hybrid, 'true' hybrids that is obtained by mixing animal and human sperm and eggs, embryos created by including animal DNA to human embryos and embryos created by adding animal cells to a human embryo.
However, the bill insists that any hybrids would be created under authorization from the Human Fertilisation and Embryology Authority and would have to be destroyed after 14 days.
Scientists believe that the new Bill facilitates research into life-threatening diseases.
"A compromise to permit the four named types of interspecies embryo under regulation is a positive outcome,' the Daily Mail quoted Lord Rees, President of the Royal Society, as saying.
However, Josephine Quintavalle, of Comment on Reproductive Ethics, said: "It's disturbing that the Government wants to put into law the fact that researchers can create true hybrids."
"This is crossing a barrier that should not be crossed. It is against the dignity of humans and animals," she said. Apart from hybrids, the bill also allows parents to create 'saviour siblings' to treat not just terminal illness in children, but also "serious" diseases for the first time.
The bill also says that doctors must go for other types of tissue and cells to treat kids rather than using stem ceils from umbilical cord of newborn donors. Quintavalle called the plan to allow screening of embryos to find a tissue match for a child suffering from a "serious" illness as "horrifying".
But, the health department has said that the bill has not changed the position for saviour siblings. "This puts the Bill in line with the current HFEA guidance - and it does not change the position on what can be used from saviour siblings," A spokesman for the Department of Health said.