Libya's National Assembly has voted to make Islamic Sharia Law the foundation of all legislation and state institutions in the country.
A special committee is to review all existing legislation to guarantee it complies with Islamic law.
The decision may impact Libya's banking, criminal and financial regulations and statutes.
The move is being seen as an effort by more moderate Islamic political groups to outflank ultra-conservative militants.
Armed groups and extremists have been gaining influence amid the country's instability.
One specific consequence might include a shift to Islamic financial laws which prohibit interest and pure speculation.
Unlike codified western law, Sharia is more loosely based on moral and legal guidelines of the Koran, the sayings of the Prophet Mohammed and Muslim traditions.
Two years after the NATO-backed uprising which ousted Muammar Gaddafi, Libya remains unstable in a difficult transition with no new constitution, a temporary government and nascent security forces struggling to contain militias and former rebels.
The immediate impact of the statement on Sharia was not clear in the already overwhelmingly Muslim country.
As in Tunisia and Egypt - where autocratic leaders were also ousted in the Arab Spring revolts - Libya has seen fierce debate over the role of Islam in its new democracy with the rise of ultra-conservative Islamists long suppressed by Gaddafi.
The hardline group Ansar al-Sharia blamed for the 2012 attack on the US consulate in Benghazi has been attempting to extend its influence.
The organisation has accused some assembly members of being un-Islamic.
Its militants have clashed with the armed forces in the east of the country.