The measure, which easily cleared the lower house Wednesday, passed by a vote of 51 to nine in the Senate -- the latest in a series of setbacks for the Lula administration in Congress.
Lula, whose current cabinet setup was established by executive order when he took office in January, had little choice but to accept the measure, passed on the same day his decree was set to expire.
Lula could still veto all or parts of the measure, but any changes would have to go back through Congress.
Without the bill, his 37-ministry cabinet would have reverted to the setup under ex-president Jair Bolsonaro.
The far-right leader had just 23 ministries, and none for Indigenous affairs, a post created by Lula to protect native peoples and their lands, notably in the Amazon rainforest.
But the vote marks a defeat for a president who took office vowing "Brazil is back" in the fight against climate change and promising to reverse surging destruction of the Amazon under Bolsonaro.
The measure allows Lula, who previously served as president from 2003 to 2010, to maintain his current ministries.
But it removes the Indigenous affairs ministry's power to decide the creation of new Indigenous reservations, returning that role to the justice ministry.
And it strips the environment ministry of its oversight of rural land registration -- key to monitoring and combating illegal deforestation -- and its management of water resources.
The showdown over the measure highlighted Lula's difficulties negotiating with Congress, where conservative parties sympathetic to the powerful agribusiness lobby scored big gains in Brazil's October elections, even as the veteran leftist narrowly defeated Bolsonaro in the presidential race.
Lula also suffered a defeat in Congress on Tuesday, when the lower house passed a controversial bill barring Indigenous reservations on lands where native peoples were not present in 1988, when the current Constitution was adopted.
Indigenous groups argue that cutoff violates their rights, given that many native peoples were forced from their ancestral lands, especially during Brazil's 1964-1985 military dictatorship.
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