Israel's parliament has adopted a law seen as targeting left-wing groups critical of the government by forcing NGOs that receive most of their funding from foreign states to declare it.
The new law was criticised by the European Union, which said on Tuesday it risked "undermining" values that the EU and Israel shared.
Rights groups allege the law violates free speech and say it will apply mainly to left-wing NGOs in a bid to unfairly discredit them as tools of foreign governments.
Supporters of the law, promoted by right-wing politicians and passed in a 57-48 vote late Monday following a lengthy debate, say it will bring needed transparency.
"The law wishes to deal with the phenomenon of NGOs which represent foreign interests of foreign states, while acting under the cover of local organisations seeking to serve the interests of the Israeli public," it says.
Prime Minister Benjamin Netanyahu, who heads what is seen as the most right-wing government in Israel's history, defended the law and said it was necessary.
The law's goal was "to prevent an absurd situation in which foreign states meddle in Israel's internal affairs by funding NGOs without the Israeli public being aware of it," he said.
"Unlike the left's claims, the law's approval will increase transparency, contribute to creating a discourse that reflects Israeli public opinion, and will strengthen democracy," he wrote on his Facebook page after the final vote.
The law will compel the relevant groups to report their main source of income to the NGO registrar, publish it on their websites and state it in relevant publications.
It will be applicable to some 27 NGOs -- 25 of which are identified with the left, according to Israeli newspaper Haaretz.
The law does not specifically refer to left-wing organisations, but such groups often receive large percentages of their funding from abroad, including from European governments.
Right-wing NGOs, such as those supporting Israel's occupation of the West Bank, tend to rely on private donations, to which the law does not apply.
Earlier versions of the law had included the requirement that representatives of applicable NGOs wear identifying tags and declare their funding sources when speaking before a parliamentary committee. That requirement was eventually removed.
The European Union joined rights groups in expressing concern.
"The reporting requirements imposed by the new law go beyond the legitimate need for transparency and seem aimed at constraining the activities of these civil society organisations working in Israel," the EU said in a statement.
"Israel enjoys a vibrant democracy, freedom of speech and a diverse civil society which are an integral part of the values which Israel and the EU both hold dear. This new legislation risks undermining these values."
The US embassy has previously expressed concerns over the "chilling effect" the legislation could have.
Israeli opposition head Isaac Herzog said ahead of the vote that the law represents "the buds of fascism blooming in Israel".
Peace Now, a prominent settlement watchdog NGO, called the law "a blatant violation of freedom of expression" and said it planned to challenge it before the country's supreme court.
"Tailored specifically to target only peace and human rights organisations, its true intention is to divert the Israeli public discourse away from the occupation and to silence opposition to the government's policies," the group said in a statement.
Human Rights Watch said: "If the Israeli government were truly concerned about transparency, it would require all NGOs to actively alert the public to their sources of funding, not just those that criticise the government's policies."