The "nation-state" law, backed by the right-wing government, passed by a vote of 62-55 and two abstentions in the 120-member parliament after months of political argument. Some Arab lawmakers shouted and ripped up papers after the vote.
Meanwhile the Zionist regime prime minister called the move as " a defining moment in the annals of Zionism".
The law was enacted just after the 70th anniversary of the birth of the Zionist entity . It stipulates the Zionist entity as the homeland of the Jewish people and they have an exclusive right to national self-determination in it."
The bill also strips Arabic of its designation as an official language alongside Hebrew, downgrading it to a "special status" that enables its continued use within Israeli institutions.
Israel's Arabs number some 1.8 million, about 20 percent of the 9 million population.
Early drafts of the legislation went further in what critics at home and abroad saw as discrimination toward Arabs, who have long said they are treated as second-class citizens.
Clauses that were dropped in last-minute political wrangling — would have enshrined in law the establishment of Jewish-only communities, and instructed courts to rule according to Jewish ritual law when there were no relevant legal precedents.
Instead, a more vaguely-worded version was approved, considering the development of Jewish settlement as a national value and will act to encourage and promote its establishment in the occupied territories .
Critics said the new law will deepen a sense of alienation within the Arab minority.
"I announce with shock and sorrow the death of democracy," Ahmed Tibi, an Arab lawmaker, told reporters.
I think this is racist legislation by a radical right-wing government that is creating radical laws, and is planting the seeds to create an apartheid state," said physician Bassam Bisharah, 71.
"The purpose of this law is discrimination. They want to get rid of the Arabs totally," said Yousef Faraj, 53, from the nearby Druze village of Yanuh. "The Israelis want to destroy all the religions of the Arabs."
Adalah, the Legal Center for Arab Minority Rights in the occupied territories , called the law a bid to advance "ethnic superiority by promoting racist policies".
The move also has been condemned by several countries including Turkey and Jordan and political figures such as the Lebanese president Michel Aoun.
