The Senate voted 50-48 to pass the bill following weeks of partisan fighting.
The $480 billion increase, which would lift the debt limit to $28.9 trillion debt limit, is expected to be exhausted by Dec. 3, the same day that funding for most federal programs expires under a stop-gap measure passed earlier this month following another partisan standoff.
That means that over the next eight weeks, the bitterly divided Congress will have the twin challenges of finding a middle ground on agency spending through September 2022 -- ranging from education and foreign aid programs to immigration enforcement and airport security -- and avoiding yet another debt limit meltdown.
The vote followed a months-long standoff bringing the nation close to the Oct. 18 date that the Treasury Department forecast as when it would no longer be able to meet its obligations.
"Republicans played a dangerous and risky partisan game and I am glad that their brinksmanship did not work," Senate Majority Leader Chuck Schumer said after the vote.
The Senate-passed bill now goes to the House of Representatives, where it is expected to be approved. House Speaker Nancy Pelosi earlier said she would recall the House to vote on the measure, though it was not clear when that would happen.
Earlier in the day, news of the negotiations drove Wall Street's main stock indexes to end sharply higher in a broad-based rally. In a sign of bond market relief, the yield on one-month Treasury bills fell to the lowest point since Sept. 8 as investors deemed that the risk of default had eased.