The Local Government (Religious Observances) Act received Royal Assent from the Queen on Thursday 2th March after clearing its final stages in Parliament this week.
The bill means councils at any level can be 'beyond any doubt' that they can chose to start meetings with prayer without fearing discrimination accusations.
The legislation which was supported by the government was taken through Parliament by Jake Berry MP and Lord Patrick Cormack after a number of legal challenges by individuals - some of whom had been supported by the National Secular Society.
Communities and Local Government Secretary and Minister for Faith, Eric Pickles said: "The right to worship is a fundamental and hard-fought British liberty, and the fight for religious freedom in British history is deeply entwined with the political freedoms we take for granted.
"Building on what we have already delivered through the Localism Act, this further Act strikes a further victory for localism, for freedom to worship over intolerant and aggressive secularism, for long-standing British liberties over modern-day political correctness, and for parliamentary sovereignty over judicial activism."
Jake Berry MP said: "Councils should have every right to hold their traditional prayers sessions if they choose to. No one is forced to take part but everyone who wants to should have that freedom and this should never have been a matter for the courts.
"I'm really pleased that we have now made the law crystal clear and that councillors, including those in parish councils, can now conduct their prayers free from the threat of legal challenge.
"This Act supports our fundamental core British values of faith in our society and people's freedom to observe their own religion and beliefs without interference from the courts."
The Bill has been criticised by the National Secular Society. Spokesman Stephen Evans, said: "It is a shame that defenders of the Bill dwelt so much on the 'freedom' of councils to hold prayers, and did not properly consider the religious liberty of individual councillors, many of whom simply want to conduct the business for which they have been elected, and not to have other people's religious beliefs imposed on them.
"Despite being granted a new power to pray, we hope local councils will choose not to turn town halls into places of worship and ensure that their meetings are conducted without anyone feeling compelled to participate in prayers, or feeling in any way excluded."