Updated at 4:36 p.m.

Transportation services like Lyft and UberX will be legalized in Minneapolis, and taxicab regulations relaxed, under a proposal that cleared a key City Council panel on Tuesday.

The unanimous vote on the package of changes follows months of haggling between the smartphone-based companies, the taxi industry and city regulators. The full council must still weigh in on the proposal at their meeting next week.

Lyft and UberX essentially allow people to act as chauffeurs of their own vehicles. Their entrance into the market several months ago has ignited a discussion at City Hall over how to regulate these unlicensed businesses, which are often competing directly with heavily regulated taxicabs.

Despite a push for one ordinance to cover both industries, the final language delineates clear differences. Only taxis can pick up passengers who hail them on the street, for example, but transportation network companies aren't bound to charge rates set by the city.

Critics of the proposal said that Lyft and Uber, now known as "transportation network companies," will raise prices without government oversight and discriminate against certain passengers.

"People who don’t live in very nice neighborhoods, they don’t have to pick up or drive home," testified Martha Hague at Tuesday's hearing.

The proposal's sponsor, Jacob Frey, countered that the city will audit where the companies have been accepting and denying rides. Plus, he noted, taxis are already discriminating.

“There has been discrimination for years now in the taxi industry. Let’s just be honest. It has been there," Frey said, referencing a recent Star Tribune article. "Will there be problems with Lyft and Uber? There may very well be. We live in a society that is at times discriminatory. Now as government, it’s our job to guard against that."

While transportation network companies can sometimes be cheaper than cabs, UberX charges three times its normal rate during peak hours -- with a $20 minimum.

“As a cab driver, I cannot raise my rates," said driver Fred Anderson. "And I’m obligated to take all customers unlike [transportation network companies]. This is not a level playing field.”

But the taxi industry scored some major victories due to an effort led by council member Abdi Warsame, changing some city ordinances that have remained untouched since the 1980s.

Vehicles could be inspected at non-city facilities, for example, and cabs could be five years older than they are now. A requirement to have a certain number of wheelchair-accessible cabs was replaced with an incentive program for both taxis and the transportation network companies.

Drivers would also be able to use the cabs as private vehicles, giving them more parking privileges, and owners could charge drivers more than $85 a shift.

The city will impose a license fee of $35,000 a year on transportation network companies, and another $10,000 as a surcharge if they do not have handicap-accessible vehicles. The license fee will help pay for a new inspector, while the wheelchair charge will help fund a to-be-determined fleet of accessible vehicles.

Insurance proved to be one of the trickiest parts of regulating transportation network companies. UberX, for example, uses a hybrid commercial policy that "supplements a drivers personal auto insurance." The state's insurance commissioner said that this raised the possibility of "unacceptable" insurance gaps, recommending that UberX obtain traditional commercial insurance.

The current proposal requires drivers to have their personal insurance policies acknowledge their roles as occasional commercial drivers. Transportation network companies must cover drivers when they are logged into the system.

"We intend to expand our service as we are able to recruit more and more people to drive on our platform," Candace Taylor, manager of government relations at Lyft. "And we also are committed to making sure there is accessibility for everyone in this jurisdiction."