The country's parliament, now filled with former political prisoners after landmark polls in November, voted to remove the controversial clause yesterday despite opposition from the military, which still controls a quarter of seats.
Under the former junta it became known as the "midnight inspections" law because police would often turn up at people's houses unannounced, demanding to know who was staying there.
Activists said officials were still using the legislation to harass people and extort money even after the military handed power to a semi-civilian government in 2011.
U Win Htein, an aide to veteran activist Aung San Suu Kyi, who is now leading the country's civilian administration, said lawmakers had kept some caveats in the bill for security reasons.
"We scrapped that clause, but we inserted some conditions," said the ex-political prisoner, who spent years behind bars under the former junta.
Police are no longer authorised to intrude late at night but can "ask about the presence of strangers in an honourable way," he said.
U Win Htein told AFP the army had opposed scrapping the clause because they were "worried it would reduce their authority".
Myanmar's military ruled the country for decades before stepping down in 2011, paving the way for the democratic transition that lifted Suu Kyi into power earlier this year.
However soldiers still run several powerful government ministries and control large parts of the economy.
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