The bill was okayed unanimously on Sunday, and states that the Israeli government could confiscate land in exchange for compensation.
The vote is believed to be aimed at avoiding the evacuation of the Amona settlement in the West Bank by December 25 ordered by the country’s Supreme Court.
About 40 families live in Amona on the territory, which is privately owned by the Palestinians.
All Israeli settlements in the occupied territories are regarded as unlawful by the international community and a key obstacle to peace efforts in the region.
The anti-settlement group Peace Now condemned the bill.
“It is a shame: the government is backing a law that will allow the confiscation of privately owned Palestinian land in order to build settlements,” said Hagit Ofran, one of the watchdog’s leaders, as cited by AFP.
Before becoming law, the bill will have to pass through three readings in parliament, and also be approved by the Supreme Court.
Not only activists see the bill as dubious: Attorney-General Avichai Mandelblit has told the ministers that he would be unable to defend the bill before the Supreme Court.
“The attorney-general told the committee that the bill does not sit with the basic principles of the rule of law as it contradicts the position that the state must respect the judiciary’s decisions in individual cases,” Mandelblit said as cited by Reuters.