The arrangement came to an abrupt end five years ago when Pommer refused to allow much-needed renovation works.
A large majority approved the new law, which was submitted by the government earlier this year in a bid to stop the dilapidated house in the northern town of Braunau am Inn from becoming a neo-Nazi shrine.
Local resident Gerlinde Pommer -- who has been renting the premises to the Austrian state since 1972 -- will receive compensation under the legislation.
It is not yet clear what will happen with the yellow corner house at Number 15 Salzburger Vorstadt Street, located right in Braunau's historic centre.
In October, Interior Minister Wolfgang Sobotka announced it would be "torn down" to make place for a new building to be used by a charity.
He said the decision was based on recommendations from an expert committee.
But several of the 13-member panel were quick to deny that the commission had backed Sobotka's push to bulldoze the place where Hitler was born on April 20, 1889.
"A demolition would amount to negating Austria's Nazi past," the experts said in a joint statement in October.
Although Hitler only spent the first few weeks of his life there, the address has been a thorn in Austria's side for decades, drawing Nazi sympathisers from around the world.
Every year on Hitler's birthday, anti-fascist protesters organise a rally outside the building, next to a memorial stone reading: "For Peace, Freedom and Democracy. Never Again Fascism, Millions of Dead Warn."
The property has been empty since 2011 when Austria became embroiled in a dispute with Pommer.
Her family has owned the 800-square-metre (8,600-feet) building for nearly a century.
Since the early 1970s, the government had been renting the premises for around 4,800 euros ($5,000) a month and used it as a centre for people with disabilities.
But the arrangement came to an abrupt end five years ago when Pommer refused to allow much-needed renovation works.
The famously elusive owner also rejected a purchase offer made by the increasingly exasperated interior ministry.
The issue has also sparked debate among Braunau's 17,000 residents.
Some want the building to become a refugee centre, others a museum dedicated to Austria's liberation from Nazi rule.