The measure, known as House Bill 470, was passed Thursday on the final day of the session.
It creates a $400,000 fund and establishes a five-member board whose job is to authorize the killing of wolves that come into conflict with wildlife or livestock. The money comes from the state's general fund, and will be augmented by fees on sportsmen and the livestock industry.
Gov. C.L. "Butch" Otter is expected to sign the bill into law. Otter had sought $2 million in the wolf fund.
"We are of one mind, that Idaho wants to manage our wolves and we want to manage them to a reasonable number so that the species don't get endangered again and the feds don't come in and take it over again," Otter said Friday.
Conservation groups opposed the bill, saying it will lead to the killing of hundreds of wolves.
"Political leaders in Idaho would love nothing more than to eradicate Idaho's wolves and return to a century-old mindset where big predators are viewed as evil and expendable," said Amaroq Weiss, West Coast wolf organizer at the Center for Biological Diversity.
The board will be appointed by Otter and will include representatives of the agricultural, livestock and hunting communities. The bill does not require any members of the board to represent the wolf conservation community, Weiss said.
"The legislature couldn't even bring itself to put a single conservationist on the board, so the outcome is predictable," Weiss said. "Many more wolves will die."
Congress in 2011 stripped Endangered Species Act protection from wolves in Idaho and Montana. Since then, nearly 1,600 wolves have been killed in those states, Weiss said.