The move will end the controversial centuries-old practice amid growing support for animal welfare in the country.
Eating dog meat was once seen as a way to improve stamina in the humid Korean summer.
But the practice has become rare, largely limited to some older people and specific restaurants as more Koreans consider dogs as family pets, and as criticism has increased over how the dogs are slaughtered.
Breeders and traders say there has been progress in making the process more humane.
However activists insist most dogs are electrocuted or hanged when killed for meat.
Animal welfare campaigner Lee Sang-Kyung responded to the new law.
"This is a very touching moment as we have been fighting in many ways to end consumption of dog meat in South Korea since 2015. I am so happy that the bill was passed, and now we should work with the government to rescue the dogs left behind and try to find their families."
Proposed by the ruling party and with rare bipartisan support, the bill was passed overwhelmingly.
Support for the ban has grown under animal lover President Yoon Suk Yeol who has 14 pets.
And in the last few years, pet ownership has boomed to one in four Korean households in 2022.
The legislation will take effect after a three-year grace period, and the breeding and slaughtering of dogs for human consumption will be punishable by up to three years in prison or $22,800 in fines.
The bill also seeks to provide compensation so that businesses can move out of the trade, with the Korean Association of Edible Dogs calling for at least $1,520 per dog over the next five years - as well as costs for facilities that will become defunct.
