Two months after replacing the head of the BND service over the damning revelations, Chancellor Angela Merkel's cabinet signed off on the reforms to keep the country's spies on a tighter leash.
Oversight of the spy agency directly from Merkel's office will be beefed up with an external watchdog panel of jurists, and the list of duties the BND carries out for the NSA has been overhauled.
While intelligence gathering from EU institutions or partner states will not be explicitly banned, it will be limited by law to "information to recognize and confront threats to internal or external security". Economic espionage is barred.
The reforms, which still require approval from parliament, are based on the findings of a government-appointed investigator into claims that the BND spied on its European allies for the NSA.
The 300-page report found the NSA had kept a long list of European government offices as targets for espionage and that the United States had thus "clearly violated treaty agreements".
The probe was based on a review of telephone numbers and IP addresses the NSA handed to the BND's surveillance apparatus with the request that the results to be sent back to the United States.
The findings indicated that over the years the BND whittled down the list of thousands of NSA targets while still maintaining cooperation.
Germany had reacted with outrage when information leaked by former NSA contractor Edward Snowden revealed in 2013 that US agents were carrying out widespread tapping worldwide, including of Merkel's mobile phone.
Merkel, who grew up in communist East Germany where state spying on citizens was rampant, declared repeatedly that "spying among friends is not on" while acknowledging Germany's reliance on the US in security matters.
Germany announced in late April that it was replacing the head of the BND.
Gerhard Schindler, 63, will take early retirement from July 1st, leaving the reins to Bruno Kahl, a 53-year-old trained lawyer and high-ranking finance ministry official.