Human rights groups in Israel are vowing to fight a government decision that would prevent Israeli Arabs from moving into Jewish communities built on state land within Israel.
Seventeen cabinet ministers voted on Sunday to support a bill brought by a right-wing MP in response to a Supreme Court ruling that would have allowed an Arab nurse to move into a Jewish village in the north of the country.
No other government in the democratic world would have adopted such a law
Yossi Sarid, Israel opposition leader
The proposed law aims to preserve the character of certain Jewish communities inside Israel by making it harder for non-Jews to buy land there.
According to Israeli media, the bill empowers the quasi-governmental Jewish Agency, which leases about 93% of state land, to establish exclusively Jewish communities on land it administers.
The man behind the proposal, Haim Druckman, has described the cabinet's support for it as one of the government's finest hours, a decision that he said put colour back into the cheeks of Zionism.
But civil rights activists and left-wing politicians have reacted with horror.
Yossi Sarid, the leader of the left-wing opposition Meretz party in parliament, and several Arab MPs have condemned the cabinet's decision.
Mr Sarid told the BBC that the decision was shameful, racist and totally unacceptable.
The controversial bill has its origins in an attempt by Arab Adel Kaadanan and his family from northern Israel to move into the nearby Jewish village of Katzir, which was set up by the Jewish Agency on state land in 1982.
The proposed ban has already embittered Israeli-Arab relations
Anyone wishing to move into a rural area within Israel designated by the government as a "community settlement" has to be accepted by a committee from the settlement.
The community of Katzir refused to accept Mr Kaadanan but two years ago Israel's Supreme Court over-ruled the village's decision.
Katzir continued to refuse to admit Mr Kaadanan and the village has now won the government's backing.
The Association for Civil Rights in Israel has described the cabinet vote as alarming and unconstitutional, because it contradicted the basic right of equality.
The law still has to be passed by parliament and the legality of the move could be challenged by the Supreme Court.
But it has already further embittered relations between Israel's Jewish and Arab populations, which have been badly soured by the current climate of mistrust in the Middle East.