DHAKA - Bangladesh approved on Monday a labor law to boost worker rights, including the freedom to form trade unions, after a factory building collapse in April killed 1,132 garment workers and sparked debate over labor safety and rights.

The legislation puts in place provisions including a central fund to improve living standards of workers, a requirement for 5 percent of annual profits to be deposited in employee welfare funds and an assurance that union members will not be transferred to another factory of the same owner after labour unrest.

"The aim was to ensure workers' rights are strengthened and we have done that," Khandaker Mosharraf Hossain, chairman of the parliamentary sub-committee on labour reforms, told Reuters.

"I am hoping this will assuage global fears around this issue as well," Hossain said.

The legislation is seen as a crucial step towards curbing rising cases of exploitation in a country with 4 million garment factory workers. But activists said it failed to address several concerns and blamed the government for enacting the law in a hurry to please foreigners.

Bangladesh was under pressure to adopt a better labour law after the European Union, which gives preferential access to the country's garment industry, threatened punitive measures if it did not improve worker safety standards.

Tax concessions offered by Western countries and low wages have helped turn Bangladesh's garment sector into the country's largest employment generator with annual exports worth $21 billion. Sixty percent of exports go to Europe.

In late June, U.S. President Barack Obama cut off U.S. trade benefits for Bangladesh in a mostly symbolic response to conditions in its garment sector, given that clothing is not eligible for U.S. duty cuts.

"They have made progress but the government rushed with it," said Rashed Khan Menon, president of the Workers Party of Bangladesh and a member of Parliament.

"They should have spent more time to deliberate on the issue of compensation for the injured and dead, maternity benefits and rights of domestic workers," he said.

The government is in talks with labour groups and factory owners on a new minimum wage for the garment sector. Its current $38-per-month minimum pay is half what Cambodian garment workers earn.

Bangladesh last increased its minimum garment-worker pay in late 2010, almost doubling the lowest pay. This time, wages are unlikely to go much higher as factory owners, who oppose the raise, say they cannot afford higher salaries as Western retailers are used to buying cheap clothing.

The April 24 collapse of the Rana Plaza complex, built on swampy ground outside Dhaka with several illegal floors, ranked among the world's worst industrial accidents. A fire at another garment factory last year killed 112 people.