"Today, democracy has died in El Salvador," said Marcela Villatoro, an MP with the opposition Republican National Alliance (Arena).
The reform was adopted by Bukele's 57 supporters in the Legislative Assembly, and voted against by only three opposition members. Critics say the move will entrench one-party rule in the country.
"Thank you for making history, fellow deputies," said the president of the Legislative Assembly, Ernesto Castro, from the ruling New Ideas party, after counting the votes.
Bukele, 44, won a second term last year despite a clear prohibition in the country's constitution.
El Salvador's top court, which is filled with Bukele-backed judges, ruled in 2021 that it was the leader's human right to run again.
The overhaul will also shorten the president's current term by two years, to synchronize elections in 2027, as presidential, legislative and municipal elections are currently staggered.
Despite his popularity, Mr Bukele remains a controversial figure.
His crime crackdown has caused murder rates to fall. But human rights groups say that thousands have been arbitrarily arrested during his anti-gang drive.
An estimated 75,000 people have been arrested under emergency measures that have been repeatedly extended.
"The day before vacation, without debate, without informing the public, in a single legislative vote, they changed the political system to allow the president to perpetuate himself in power indefinitely and we continue to follow the well-travelled path of autocrats," Noah Bullock, executive director of rights group Cristosal, said.
In a report in December, Amnesty International criticised the "gradual replacement of gang violence with state violence".
