The federal government stepped in after a stoush between the AFL and union leader John Setka when he pressured the football code to fire its chief umpire.
Mr Setka, the Construction, Forestry and Maritime Employees Union Victorian secretary, attacked the AFL for hiring Stephen McBurney, the former head of the Australian Building and Construction Commission.
Mr Setka threatened to delay construction work on stadiums if his demands were not met.
CFMEU leader John Setka was at loggerheads with the AFL over an appointment of its chief umpire. (Joel Carrett/AAP PHOTOS)
The legislation will enable a Fair Work Commission application to be made before October 31 for a ballot to be held to let the manufacturing division decide on splitting.
It passed parliament with the support of Labor and the coalition on Tuesday.
The manufacturing division welcomed the "divorce law", saying it empowered its members and enabled them to take a vote which the construction division had been frustrating for years.
"Our members are now on a pathway to a more active and respected role in the labour movement which they can achieve by formally dissociating themselves with the CFMEU and its ever-deteriorating reputation," national secretary Michael O'Connor said.
The law stops the CFMEU expanding to overlap and cover potential new organisations of manufacturing members.
National secretary Zach Smith hit back at the legislation, saying a union's coverage shouldn't be determined by the government.
"It's incredibly disappointing the federal government pushed ahead with a bill that could set a dangerous precedent for breaking up unions," he said.
"The CFMEU will never apologise for being a strong militant trade union that delivers industry-leading pay rises and wins world-first safety campaigns."
Workplace Relations Minister Tony Burke, who introduced the legislation in the lower house, called the status quo "dysfunctional".
The manufacturing division represented workers in largely feminised industries such as textiles and it "wasn't hard to see why those members might want to leave", he said.
Mr Setka was expelled from the Labor Party in 2019.
Mining union members of the CFMEU voted to split from the union in 2023.
