The Panamanian congress has formally approved a $5bn plan to widen the Panama Canal, its biggest expansion since it opened in 1914.
The existing locks are too narrow for many ships
Some modern ships are now too wide to go through the canal, and those ships that can pass have to queue for hours.
The project will now go to a binding referendum to be held later this year.
Opinion polls show that voters in Panama are in favour of the plan, but critics say the completed project will still not meet shipping needs.
The 80km (50-mile) Panama Canal, which was controlled by the United States until 1999, handles nearly 5% of global trade.
At present, it can only handle ships carrying up to 4,000 containers, known as Panamax vessels.
But with wider locks and deeper and wider access canals it could take ships carrying up to 10,000 containers.
The canal carries about 5% of world trade
The current locks are 33 metres (108 feet) wide, but the new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads.
Panama says the cost of the upgrades would be met from increased tolls, supplemented by a $2.3bn loan.
But opponents say that when the work is finished in 2014-15, the canal will still be inadequate. An alternative plan of new terminals at the Pacific and Atlantic ends of the canal to handle containers in transit is proposed.
The canal is mainly used by the US, Japan, China and Chile.