The French Senate on Monday approved the measure which threatens with jail anyone in France who denies that the 1915 massacre of Armenians by Ottoman Turk forces amounted to genocide.
That sparked a furious reaction in Turkey, where hundreds protested outside the French embassy in Ankara and Prime Minister Recep Tayyip Erdogan denounced the move as "tantamount to discrimination and racism".
Erdogan warned that his Islamist-rooted government would punish Paris with unspecified retaliatory measures if Sarkozy, whose right-wing UMP party initiated the bill, signed it into law.
But Sarkozy appeared undeterred.
"The president of the republic will promulgate the law punishing denial of the genocide of the Armenians in 1915 within the normal timeframe," which is two weeks, a Sarkozy aide said.
France has already officially recognised the killings as a genocide, but the new law would go further, by punishing anyone who denies this with up to a year in jail and a fine of 45,000 euros ($57,000).
Armenians say up to 1.5 million of their forebears were killed in 1915 and 1916 by the forces of Turkey's former Ottoman Empire.
Turkey disputes the figure, arguing that 500,000 died, and denies this was genocide, ascribing the toll to fighting and starvation during World War I and accusing the Armenians of siding with Russian invaders.
Armenia hailed the passage of the bill through the French Senate, with President Serzh Sarkisian writing in a letter to Sarkozy: "France has reaffirmed its greatness and power, its devotion to universal human values."
The world's largest Muslim body, the Organisation of Islamic Cooperation, meanwhile rejected the bill as inconsistent with historical facts.
Turkey's ally Azerbaijan blasted the French vote, with the foreign ministry saying the move was "against the principles of democracy, human rights, freedom of speech and expression".
In Washington, State Department Victoria Nuland said that "this is a matter between Turkey and France... we want to see good relations between them."
Amnesty International meanwhile, criticised the law, saying it would violate freedom of expression.
"This bill, if implemented, would have a chilling effect on public debate and contravene France’s international obligations to uphold freedom of expression," said Amnesty's Europe and Central Asia director Nicola Duckworth.
"People should be free to express their opinions on this issue -- in France, Turkey and elsewhere," she said. "French authorities are failing to comply with their international human rights obligations."
French Foreign Minister Alain Juppe, who has publicly said he was against the bill, appealed Tuesday to France's "Turkish friends" for calm, but his call went unheeded.
Erdogan said: "We will implement our sanctions step by step, without any retreat. We'll publicise our action plan according to the developments on the ground."
When France's lower house passed the bill last month, Ankara recalled its envoy to Paris for consultations and froze political and military ties with Paris while vowing to impose "permanent" sanctions if the measure is finally adopted.
If it takes effect, the law is expected to hurt diplomatic and trade ties between the two NATO allies, and Turkey has drawn up contingency plans.
Possible new sanctions include lowering diplomatic ties to the level of charge d'affaires and halting cultural and scientific cooperation.
The Turkish government has so far avoided calling for a full boycott of French products under pressure from the Turkish business community.
Trade between Turkey and France was worth 12 billion euros ($15.5 billion) in 2010, with several hundred French businesses operating here.
The Turkish press on Tuesday expressed collective fury over the bill, accusing France of breaching the right of freedom of expression.
"Shame on you, France" the daily Vatan said. "France, where the ideal of freedom was born, has delivered the hardest blow to the freedom of expression," it wrote.