The Political Parties Registration Law, published in state-run newspapers on Wednesday, excludes anyone convicted of a crime from joining a political party and thus, from contesting in elections.
The law could also disqualify about 2,100 political prisoners that human rights groups say the military government has jailed.
Nyan Win, one of Aung San Suu Kyi’s lawyers and a senior member of her National League for Democracy (NLD) party, said the new law also bars people who have lodged an appeal against a conviction, a provision which he said “clearly refers” to the Nobel Peace Laureate.
“I was extremely surprised when I saw this; I did not think it would be so bad,” he told the AFP news agency.
The law could force the NLD to expel Aung San Suu Kyi if it wants to field other candidates in the elections, because parties are required to remove members who are “not in conformity with the qualification to be members of a party”.
The legislation also requires the 10 political parties recognised by the ruling generals to register with an election commission – whose members will be hand-picked by the military rulers – within 60 days.
Nyan Win said the NLD needed to discuss the legislation before deciding what to do.
Speaking to Al Jazeera from the Thai city of Chiang Mai, Nyo Myint, an NLD spokesman in exile, said the elections would not be free and fair under the new laws.
He said it was very obvious that the current military regime was trying to block Aung San Suu Kyi and thousands of other political activits who have been jailed or released recently from participating in the 2010 elections.
“Right now in Rangoon (Yangon) people are very interested and very nervous about the new laws because they are suffering socially and economically… and they really need to have change,” he said.
“Within people’s hearts the NLD and Daw Aung San Suu Kyi are their only hope and future.”
It was already widely expected that Aung San Suu Kyi would be shut out from the elections since a provision in a new constitution approved in 2008 – which opposition groups do not recognise – stipulates that those with foreign ties are not eligible to run.
Aung San Suu Kyi’s late husband, Michael Aris, was British, her two sons have British citizenship, and she has been described by the military government as enjoying special links with Britain.
The opposition leader, who has spent 14 of the past 20 years in detention, was convicted last August of violating the terms of her house arrest by briefly sheltering an American who swam uninvited to her lakeside residence.
She was sentenced to a new term of house arrest that is due to end in November and last month an appeal against her continued detention was rejected by the supreme court.
The sentence was seen as a way to keep the Nobel Peace Prize laureate locked up during the election campaign and opposition leaders said the announcement of the latest election law seems designed to cement her exclusion from the polls.
Aung Thein, a lawyer who has defended activists in the country, called the law “absolutely undemocratic and unfair”.
“It is very unfair that a party member serving a prison term for his or her political convictions has to be expelled from the party. This clause amounts to interfering in party internal affairs,” he said.
The law announced on Wednesday also bars members of religious orders and civil servants from joining political parties.
It is the second of five laws enacted on Monday ahead of the polls expected to be held in October or November, although the military government has not yet announced a specific date.
On Tuesday, the government announced the Union Election Commission Law, saying it would appoint a five-member election commission of “eminent” and “loyal” citizens to have the final say over the country’s first elections in two decades.
Myanmar’s last election in 1990 was won by a landslide by the NLD, but the military refused to recognise the result and jailed many NLD leaders.
Find more articles about Aung San Suu Kyi and politics in Myanmar from Al Jazeera.