Senators voted in 28 to 9 for the bill over fears that employers could force workers to have RFID tracking tags under their skin at all times.
The bill now goes to the state governor for signing before it become law.
While RFID holds the promise of making it easier to manage workers, and restrict access to sensitive areas, privacy and human rights concerns have raised the hackles of unions, legislators and the public.
"We shouldn't condone forced 'tagging' of humans," state Senator Joe Simitian said.
"It's the ultimate invasion of privacy."
Senators felt that the device could be misused, enabling identity theft and improper tracking and surveillance, Simitian said.
"Passage of bill SB 362 ensures that no Californian is compelled to have electronic identifiers of any type embedded in their body," he stated after the bill was passed.
"This provides Californians with the personal agency to make such decisions should they have a reason to, as well as another means of protecting their personal information."
Other states are moving in the same direction.
Wisconsin has already moved to ban the practice under a bill signed in 2005.
A similar measure, SB 2220, has also been introduced by a Republican lawmaker in Florida and is making its way through the legislature there.
Current California law does not specifically prohibit the forced implantation of RFID devices in people.
The new bill, SB 362, would prohibit the forced, compelled, or coerced implantation of a subdermal identification device-including the standard, chipped RFID tags, and new, chipless, invisible RFID tattoos.
The bill would not affect those who agreed to voluntary implantation,Simitian said.
One company in the US, VeriChip, has already been licensed by the Food and Drug Administration to sell human tracking devices, about the size or a grain of rice, that are put under the skin via a quick "outpatient" procedure.
Once under the skin, the chip emits a radio frequency signal transmitting the individual's identification number, which can be scanned with a handheld or wall-mounted reader.
"This number can then be used for such purposes as accessing personal medical information in a password-protected database or assessing whether somebody has authority to enter into a high-security area," says the VeriChip website.
According to the Los Angeles Times, around 2,000 workers in the US have now had these chips implanted.
Despite sounding like an Orwellian fantasy, human tagging is a popular topic for debate in the food industry both in the US and the EU, with several companies claiming that the technology enables them only to track and monitor operations, not to interfere in the personal lives of employees.
In 2005, several of the warehouses supplying UK supermarkets decided to make employees wear portable tracking devices on their clothing.
The tags, they claimed, would provide reliable inventory numbers, improve the workers' efficiency in filling orders, reduce in-transit theft and help track goods accurately.
Their decision infuriated the British Trade Union (GMB), which accused the warehouses of creating "battery farm" style workplaces.
"The GMB is no Luddite organisation but we will not stand idly by to see our members reduced to automatons," said Paul Kenny, GMB acting general secretery.
"The use of this technology needs to be redesigned to be an aide to the worker rather than making the worker its slave."
In the US, the Federal Trade Commission reports that two-thirds of the consumers familiar with RFID rank privacy as their top fear about the technology, and RFID tags are now banned from ID cards in California.
The use of RFID technology is in no way disappearing, however, and a recent report by IDTechEx estimates that its use in the food supply chain will rise to to $5.8bn by 2017.
What is more, the analyst firm forecasts that RFID will become more important in the food sector than any other field.
RFID uses a wireless system that helps enterprises track products, parts, expensive items and temperature-and time-sensitive goods.
Transponders, or RFID tags, are attached to objects.
The tag will identify itself when it detects a signal from a reader that emits a radio frequency transmission. Regulations on traceability and mandates from such giant retailers as Wal-Mart and Metro are slowing forcing processors to make investments in the technology, as is legislation demanding improved food safety.