Under the old law, citizenship could only be handed down via a child's father, meaning children born to an Indonesian woman and a foreign man could not become Indonesian citizens.
Such children could only live in Indonesia on temporary permits that were expensive and time-consuming to obtain.
A group of Indonesian women married to foreign husbands had lobbied for the 1958 law to be replaced and were in parliament when the new bill was passed.
On reaching 21, children from mixed marriages must choose one citizenship, the law states, the AP reports.
The new law also states that foreigners who have been living in the country for five years will be able to apply for Indonesian citizenship, but they must give up their original citizenship and be able to speak Indonesian, among other conditions.
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