The Nashville City Council passed an anti-discrimination measure Tuesday that extends the city's gay protections to contractors in a 21-15 vote.
The new rules make it illegal for firms doing business with the city to discriminate on the basis of sexual orientation or gender identity.
"The message it sends is that if you're talented and willing to work, you're welcome in Nashville, Tennessee," said Chris Sanders of the Tennessee Equality Project.
Council members introduced the legislation after Lisa Howe, a lesbian soccer coach at Belmont University, lost her job at the Christian school because she's a lesbian.
Opponents of the measure argued that businesses that contract with the city should not be forced to compromise their religious or moral values.
Councilman Phil Claiborne said the policy sends the message that business owners with religious convictions must "abandon their core beliefs" to do business with Metro.
"That's a hypocritical travesty," Claiborne said.
The debate pitted conservative and liberal churches against one another.