The settlement is part of a deal reached between Baghdad and Washington last year to end years of legal battles by U.S. citizens who claim they were tortured or traumatized, including hundreds held as human shields.
Many Iraqis consider themselves victims of both Saddam's regime and the 2003 U.S.-led invasion and wonder why they should pay money for wrongs committed by the ousted dictator.
Lawmakers approved the settlement by a majority after listening to the foreign and finance ministers as well as the head of the central bank describe why it was necessary, said Abbas al-Bayati of the State of Law political bloc.
Another lawmaker, Mahmoud Othman, said by approving the settlement, Iraq would be protecting itself from more lawsuits in the future that could have been well above the $400 million that was agreed to.
"They explained very well what was the settlement and how it will be negative if we don't approve it," he said. "That's why people were persuaded."
Lawmakers affiliated with anti-American cleric Muqtada al-Sadr rejected the settlement, said one of the bloc's legislators, Hakim al-Zamili. Al-Zamili said he was surprised that so many lawmakers who had been arguing against the legislation before Saturday's session reversed course at the last minute.
"It's better to compensate the Iraqi martyrs and detainees than the Americans," he said.
Saddam's regime held hostage hundreds of Americans during the run-up to the Gulf War, using them as human shields in hopes of staving off an attack by the U.S. and its allies. Most of the Americans had been living and working in Kuwait and after being taken hostage were dispersed to sites around Iraq.
Many of the Americans pursued lawsuits for years against Saddam's government and kept up their legal fight after Saddam was overthrown in 2003 and a new government came to power.
Some former American troops who were captured by Saddam's military during the Gulf War and repeatedly tortured and abused have also sued as have relatives of American oil workers who were working in Kuwait when they were picked up by Iraqi guards along the border.
It's not clear exactly who will be entitled to money under the settlement. When asked who would receive the money, a spokesman for the U.S. Embassy in Baghdad, David Ranz, said: "We are not in a position to confirm whether specific cases or claims by specific individuals are covered by the agreement." He declined to comment further.
Iraq was under a time crunch to approve the settlement before June 30, when Iraq will assume responsibility for overseeing its oil revenue account. Since 2003, the country's oil revenue has been held in a New York-based account that shelters it from international creditors' claims. The U.N.-backed protection expires when the oil revenue is transferred to Iraqi control, and Iraq could face international creditors like any other country.
According to the parliament's website, Foreign Minister Hoshyar Zebari told lawmakers the Iraqi government still had the right to submit its own demands for compensation to the American government.
Many Iraqis harbor deep resentment toward the U.S. for the bloodshed unleashed after the toppling of Saddam. Eight years on, violence still plagues the country.
In the northern city of Mosul a suicide bomber blew himself up Saturday near an Iraqi army checkpoint, killing seven people. Police and medical officials said 20 people were injured in the blast. Five of the dead were Iraqi soldiers.
The officials spoke on condition of anonymity because they were not authorized to speak to the media.
