The bill threatens to freeze 220 million dollars (A$282m) in funding.
The US is the largest financial contributor to global watchdog, giving US$438m of the organisation’s total 2005 budget of US$1.8b.
US lawmakers defied opposition from US President George W Bush and the White House to pass the controversial bill 221 votes to 184 in the Republican-dominated lower chamber.
“The time has finally come where we must in good conscience say ‘enough’,” said Illinois Republican Henry Hyde who introduced the legislation.
“Admonishments will not transform sinners into saints; resolutions of disapproval will not be read; flexible deadlines and gentle proddings will be ignored… Instead more persuasive measures are called for,” Mr Hyde said.
The bill is pressing for the implementation of 32 out 39 changes already being considered for the UN, following the announcement of a reform package by UN Secretary General Kofi Annan in March.
Chief among the proposals is amendment of the discredited Human Rights Commission which counts Zimbabwe and Cuba among its 53 member states.
The controversial new law also envisions redirecting funding away from areas such as the UN public information office to go to creating new bodies, such as an independent board to investigate allegations of internal wrongdoing.
Mr Annan described the move as unproductive, coming ahead of planned discussions of UN reforms at the 60th UN general assembly in September.
In a written statement the Secretary General said he did “not feel that withholding dues (was) a productive route to achieving reform and indeed that it could jeopardise the outcome of the September summit.”
To become law, the legislation will have to pass through the US Senate and be signed by President Bush, who has signalled his disapproval.