Argentina passed a measure Thursday aimed at sidestepping a US court order that has blocked the country from paying back debt tied up in a feud with hedge funds.
The law, approved by the senate last week, got the green light in the legislature's lower house by a vote of 134 in favor to 99 against, with five abstentions.
The immediate goal is to allow Argentina to make good on a debt payment of $200 million due on September 30.
It is the latest move by President Cristina Kirchner's administration in a legal tussle with creditors who have refused to join a restructuring deal following Argentina's 2001 default on $100 billion of debt.
Under that deal, 93 percent of the country's creditors accepted a cut of 70 percent of the face value of their Argentine bonds.
But two foreign hedge funds, US billionaire Paul Singer's NML Capital and US-based Aurelius Capital Management, refused to accept the write-down.
They took Argentina to court and won a ruling from US federal Judge Thomas Griesa ordering the South American country to pay them the full $1.3 billion due.
Griesa also blocked Argentina from repaying its other creditors until it fulfills the requirement, causing the country to default again in July.
Under the new law, passed early in the morning after a marathon 17-hour session, the repayment location is moved from New York to either Buenos Aires or Paris.
A third option opens the possibility for a bondholder to propose an alternative mechanism to collect the debt.
The legislation defies Griesa's ruling that moving the repayment site outside the United States would be illegal.
To pressure the government, the district court judge froze $539 million that Buenos Aires deposited at the Bank of New York Mellon to pay the bondholders that accepted debt restructuring deals in 2005 and 2010.
Argentina was declared in default by international credit rating firms after the grace period on the interest payments expired on July 30.
The hedge funds have warned they will take new legal action in the United States against the new legislation.
A lobby group representing the funds, the American Task Force Argentina, said the move was an attempt to "flout international norms and obstruct justice" that was doomed to fail.
"The Kirchner regime's maneuverings in this case already have made it very difficult for that government to convince anyone to go along with yet another delay tactic," it said.
"Argentina must abide by its commitments, pay what it owes, and hopefully return to the company of responsible, law-abiding nations."
Investors who back the law include Mexican magnate David Martinez Guzman, owner of the investment fund Fintech Advisory, who holds almost $1 billion worth of Argentine bonds.
Tulio Zembo, who represents 450,000 small Italian investors, also backs the alternative.
But some companies are not legally allowed to accept repayment sites outside New York. Griesa warned of sanctions against firms that help Argentina circumvent his order.
- 'Buying time' -
Argentina has labeled the holdouts "vulture funds" for buying its defaulted debt at steep discounts, then suing for full payment.
NML Capital stands to make a profit of 1,600 percent if it gets Buenos Aires to pay it the full $800 million it is owed.
Kirchner's government, which has sought to cast its fight with the hedge funds as a battle for national sovereignty, called the law's passage a major victory.
"We achieved an absolute majority and ratified a clear position: those who vote in favor are defending the country's sovereignty, and those who vote against agree with the vulture funds," said cabinet chief Jorge Capitanich.
Analysts said the move appeared aimed at stalling until January, the expiration date of a clause in the restructuring deals that entitles all bondholders to equal treatment.
Argentina argues that paying the hedge funds in full would trigger a flood of claims from other creditors under the Rights Upon Future Offers, or RUFO clause, putting it on the hook for up to $120 billion.
The country's reserves currently stand at less than $30 billion.
"The government is buying time to get through to 2015," said Pablo Tigani, director of consultancy Hacer.