In a holdover from the Cold War era, critics said for most Russians "foreign agent" is a synonym for "spy," a label that could discredit human rights groups that receive funding from outside the country.
Lev Ponomaryov, of the For Human Rights organization, said the law is an attack on the Russian civil liberties movement.
"This is a liquidation of the human rights movement in Russia." he said. "We will not obey this law if it is adopted. We will not register as foreign agents."
NGOs that fall under the law would have to publish biannual reports of their activities and undergo an annual financial audit. Those that don't comply would face a four-year jail sentence and/or fines of up to $9,200, RIA Novosti reported Friday.
Lawmaker Alexander Sidyakin proposed the legislation, but rejected the idea that "foreign agent" was related to espionage.
"There is an entire network of NGOs whose financing is suspicious from the point of view of its provider," Sidyakin said in a statement.
"I think the idea that 'foreign agent' means 'spy' is more of a hangover from the Soviet period in which our parents grew up. We should try to get over Cold War terminology. I believe there is nothing insulting in this term."
Lawmakers are scheduled to debate the law Friday and could come to a decision this month.