The amendments approved by the Bundestag lower house of parliament enshrine in law decrees from 2019 already in force, which followed a campaign by relatives of Nazi-era refugees.
Relatives of refugees have been angered that their applications for citizenship were rejected despite constitutional guarantees.
Germany’s Basic Law states that former German citizens who between 1933 and 1945 were deprived of their citizenship on political, racial or religious grounds and their descendants can have their citizenship restored.
However, some had applications rejected or were told they are not eligible to apply, often on the grounds that they were born to a German mother and non-German father. Until 1953, German citizenship could only be passed on through the paternal line.
Under the new law, these loopholes have been closed.
At a time when politicians are warning about a rise in antisemitism in Germany, Schuster said law sent an important signal.
"Political education and enlightenment in general must be strengthened in order to push back anti-democratic tendencies," he said.