THE Knesset approved a controversial piece of legislation in the early hours of yesterday that defines the country as an exclusively Jewish state.
Critics slammed it as the "nail in the coffin" of Israeli democracy.
The nation-state bill establishes Israel as the historic home of the Jewish people with a united Jerusalem as its capital..
The government says the bill will merely enshrine into law Israel's existing character.
Prime Minister Benjamin Netanyahu called its passage a "historic moment in the history of Zionism and the history of the State of Israel".
"Israel is the nation state of the Jewish people, which honours the individual rights of all its citizens," he said. "I repeat this is our state. The Jewish state.
"Today we have made a law in stone. This is our country. This is our language. This is our anthem and this is our flag. Long live the State of Israel."
The law passed with a 62-55 backing.
However some clauses were dropped following objections by Israel's president and attorney-general , including one that would have enshrined in law the creation of Jewish-only communities.
Opponents of the new bill say it marginalises the country's Arab minority and also downgrades the Arabic language from official to "special" standing.
Arabs make up approximately 20 per cent of Israel's population and about 36 per cent of the population of Jerusalem.
The legislation will likely face a challenge at the Supreme Court.
Ayman Odeh, the head of the Arab Joint List, pulled out a black flag and waved it during his speech, warning of the implications of the law.
"This is an evil law," he said, adding that "a black flag hovers over it."
"Today, I will have to tell my children, along with all the children of Palestinian Arab towns, that the state has declared that it does not want us here. It has passed a law of Jewish supremacy and told us that we will always be second-class citizens."
The PLO said that the nation-state law "gives licence to apartheid, discrimination, ethnic cleansing and sectarianism at the expense of the Palestinian people".