The compromise by the party leadership adds new paragraphs to the policy statement in the so-called "Contract for the Future", a document which contains the party's policies were it to win the general election in 2014.
The policy now states, that to "substantially limit" venture capital companies and private actors from taking out profits in the welfare sector, there will be "demands placed on private companies so that they cannot have significantly lower costs than municipal or county run facilities in staffing and other quality-related areas".
The revised document also now states that "national laws on quality should be implemented in the welfare sector in order to improve quality and significantly limit profits, while at the same time guaranteeing diversity and freedom of choice".
The party has also approved to change the law on school choice so that it is no longer obligatory for municipalities to comply with the free establishment of new, private-run schools.
But the Association of Private Care Providers responded that this compromise is the most serious threat to freedom of choice for many years.
"This allows local politicians to indiscriminately limit or stop people's right to choose where they get care," says Håkan Tenelius, from the branch organization, to news agency TT. "It negatively impacts the companies, but mostly it impacts the people who want to choose which health clinic or elderly care facility they go to."
Tenelius says the proposal creates uncertainty in the market and makes private healthcare cautious when it comes to hiring and starting new operations.
The Social Democrats voted on the issue on Friday evening. Ahead of the vote, the party's education spokesperson Ibrahim Baylan said municipalities need to have more sway over local schools.
"The situation in our schools, not least in high schools, is unsatisfactory," Baylan told Swedish Radio, referring to a number of recent closures of schools who faced low enrollment.
"It affects the students and their right to education. We cannot have it that way any longer. That is why we'd like to strengthen the influence of municipalities."
Löfven hopes to avoid a defeat on key issue
The Social Democratic leadership has proposed a compromise on whether or not to allow companies working in healthcare, school, and elderly care to take out profits,