The National Assembly, dominated by the ruling Sandinista National Liberation Front (FSLN), unanimously approved the agreement, said the body's chief, Gustavo Porras.
The accord will encourage "the trade of goods and services by promoting conditions of fair competition in the free trade zone (and) increasing investment opportunities," said FSLN deputy Jose Figueroa.
The pact was signed in a virtual ceremony by officials of the Ortega government with their Chinese counterparts in August.
Nicaraguan authorities say the agreement will free 91 percent of the Central American country's exportable products from tariffs, some of them gradually, but without giving further details.
Nicaragua is seeking to agree on a 5G technology plan with the Chinese telecommunications company Huawei, which Washington has deemed a national security threat and a potential conduit for spying by the government of Xi Jinping.
China and Nicaragua reestablished diplomatic relations in 2021 after Managua cut ties with Taiwan.
Beijing considers self-ruled Taiwan as its own territory and has vowed to seize it one day, by force if necessary.
Of Central America, only Guatemala and Belize maintain diplomatic relations with Taiwan. The last to change sides was Honduras, in March.
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