The upper house, under pressure from environmentalists, had earlier approved a tax of €300 per tonne of palm oil, which is blamed for the destruction of huge swathes of rainforest to make way for vast palm tree plantations.
The Senate measure would have raised the tax to €500 in 2018, €700 in 2019 and €900 from 2020, while the lower house schedule would stay at one-tenth of those levels, rising to €90 in 2020.
The surtax is part of a bill on biodiversity that is to return to the Senate for a second reading, but the lower house will have the final say.
Indonesia had decried the Senate's proposed surtax as "arrogant" and "excessive" and a move that could threaten bilateral ties.
The greatly reduced surtax is "more realistic," said Barbara Pompili, a junior minister responsible for biodiversity issues.
Lawmaker Jean-Louis Bricout of the ruling Socialist Party added that it was out of the question to "suddenly destabilize supplies to companies in France, or the revenue of the producers of these oils, who are mainly in developing countries."
It was the third time since 2012 that the tax has come up before the parliament.
Environment Minister Segolene Royal last year rankled Ferrero, the Italian company that makes Nutella, by urging people to stop eating the chocolate hazelnut spread, saying it contributes to deforestation.
She had to apologize a few days later for saying that Nutella, which is immensely popular in France, should be made from "other ingredients".
At 104 euros per tonne, palm oil is among the least taxed edible oils in France, where olive oil for example is taxed at 190 euros a tonne.
While France imports only 150,000 tonnes of palm oil of the total world output of 62 million, Indonesia and Malaysia fear that other consumers may follow its lead if it imposes an exorbitant green surtax.
Socialist lawmaker Anne-Yvonne Le Dain noted the inconsistency of targeting palm oil.
"We import little palm oil, but we import massive amounts of coffee, rubber, chocolate and peanuts" without concern for the deforestation those commodities entail, she said.