COLOMBO - Sri Lanka's parliament approved a domestic debt restructuring plan on Saturday that is crucial to continue a $2.9 billion bailout from the International Monetary Fund (IMF).

The plan passed with a majority of 122 votes in the 225-member parliament.

Sri Lanka tumbled into its worst financial crisis in more than seven decades last year after the country's dollar reserves shrank to record lows, triggering mass protests, a foreign debt default and the resignation of its former president.

To put its debt on a sustainable footing and pass an IMF review, Sri Lanka unveiled a much-anticipated domestic debt restructuring framework last Thursday that seeks to rework part of the island nation's $42 billion domestic debt.

"This debt restructuring plan is essential for Sri Lanka to meet the target set by the IMF agreement to reduce debt from the current 128% of GDP to 95% of GDP by 2023," State Minister of Finance Shehan Semasinghe told parliament.

"We are doing this while protecting banks, depositors and pensions."

(Writing by Shivangi Acharya in New Delhi; Editing by Andrew Cawthorne)