Thousands of union members rallied outside the Statehouse before the vote Thursday, The New York Times reported. Protesters gathered in the Assembly chamber turned their backs on legislators as the cuts passed 46-32.
The state Senate has already passed a similar bill and is scheduled to vote Monday on the Assembly version. Leaders said they expect it to pass.
The vote was a victory for Gov. Chris Christie, who has been governor less than 18 months and has been talked about as a possible Republican presidential candidate -- and has insisted he is not a candidate.
Christie's staff estimates the bill -- by increasing employee contributions for health insurance and pensions, suspending cost of living increases for pensions and raising the age of retirement -- will save as much as $132 billion for the state and for county and municipal governments over 30 years. The changes are to be phased in over four years.
Government employees will have to pay several thousands of dollars more a year for health insurance and pension coverage.
"We are putting the people first and daring to touch the third rail of politics in order to bring reform to an unsustainable system," Christie said in a statement.