The 450 seats of the lower house of parliament are currently split equally between political parties and winners of single-ballot votes.
The bill would therefore make it impossible for electoral blocs and independent candidates to run for Duma elections.
Despite Putin's assurances that the bill will consolidate young parties, it has created an outcry among opposition forces.
Gennady Zyuganov, the leader of Russia's Communist Party, says the law would significantly strengthen the position of the pro-Kremlin party, United Russia, ahead of the next Duma elections in 2007.
"Take note of the fact that ahead of every new election a new writing of the law is proposed. Why is this law needed? This bill once again gives the ruling party all the advantages," Zyuganov says.
The opposition, however, had little hopes of blocking the bill, as United Russia holds a two-third majority in parliament. The bill sailed through its second reading with 335 votes in favor and just 95 against.
Analysts like Boris Kagarlitskii, who heads the Globalization Institute in Moscow, also largely views the bill as a move by the Kremlin to muzzle the opposition and extend its own control of the political scene.
"The Russian political leadership wants to control the political space as much as possible. This is exactly what in Russia is called 'managed democracy,' which means that there is not much democracy but quite a lot of management. Basically, the government wants to control not only its own political base but also the opposition," Kagarlitskii says.
The draft law is part of sweeping political reforms initiated by Putin to strengthen central power in the aftermath of the Beslan hostage tragedy last September. The Kremlin has already scrapped the popular elections of regional governors, who are now put forward to local parliaments by the president.
Critics of the bill say banning electoral blocs from being represented in the Duma will reduce the number of parties in parliament.
Without the possibility to unite in coalitions, they say, small parties are unlikely to clear the 7-percent barrier needed to run for Duma elections.
Nikolai Petrov, a political analyst at the Carnegie Center in Moscow, agrees that the decision to exclude coalitions from the Duma would deal a severe blow to opposition parties.
"This severely limits the possibility of maneuver for opposition political forces, because they are often too weak to succeed on their own. On the other hand, they are not ready to unite once and for all," Petrov says.
Analyst Kagarlitskii says the authorities also fear that new coalitions could sprout from the growing social discontent over the government's unpopular benefits reforms.
United Russia has also fared poorly in recent parliamentary elections in certain regions, where it has proved less popular than electoral blocs supported by the local governor.
Another hotly disputed aspect of the bill is its clause allowing deputies to give up their mandates without any sanction being taken against his or her party.
Mandates made vacant without sufficient reason are currently redistributed to other political parties.
Petrov says this will enable the Kremlin to substitute elected deputies for its own people.
"As it has been done before, United Russia will actively use governors to attract voters. Then, people who are absolutely unknown to voters will sit in their place in the Duma," says Petrov.
The bill now requires one more reading and the approval of the upper chamber of parliament before Putin can sign it into law.