Israel's parliament passed a measure on Tuesday enabling the denial of state funding to institutions that question the country's existence as a Jewish state, in a move criticised as targetting an Arab minority.

The so-called Nakba Law, using the Arabic word for "catastrophe" which is how many Palestinians regard the founding of Israel, passed by a vote of 37 to 25 after an angry debate among right and left-wing lawmakers.

Civil rights groups have denounced the measure as an effort to restrict freedom of expression to Arabs, who make up about a fifth of Israel's predominantly Jewish population.

The law would enable the withholding of funds to public institutions deemed to be involved in publicly challenging the founding of Israel as a Jewish state or any activity "denying the existence of Israel as a Jewish and democratic state."

Many Israeli Arabs, as relatives of Palestinians who remained in what is now Israel when hundreds of thousands of others were driven away or fled during a 1948 war over Israel's establishment, question whether Israel should be a Jewish state.

Unlike Palestinians living in territory Israel captured in a 1967 war, Israeli Arabs are fully enfranchised though many complain of discrimination.

Right-wing Israeli lawmakers who introduced the bill insisted it was intended to defend Israel against what they see as a growing number of attacks on its legitimacy because of a continuing conflict with the Palestinians and other Arab states.

Israeli liberals argued it was undemocratic.

Arab lawmaker Jamal Zahalka said the measure would likely encourage more Israeli Arabs to participate in the kind of events it sought to prevent -- the public mourning of Israel's creation, which takes place in marches held each year in some Arab towns on Israeli Independence Day.