The proposal - denounced by critics as likely to encourage a witch-hunt against leftist groups that campaign for the defence of Palestinian rights - was passed in a 50-43 vote following a tense debate.
Two more readings of the bill by the parliament, or Knesset, are required for it to become law.
The text has renewed tension between one of the most rightwing governments in Israeli history and the United States and the European Union.
Prime Minister Benjamin Netanyahu has also expressed support for the law.
The text does not specifically refer to leftist organisations, but they are expected to be most affected as right-wing NGOs, such as those supporting Israel's occupation of the West Bank, tend to rely on private donations, particularly from within the United States.
Several leftwing Israeli NGOs receive large percentages of their funding from abroad, including from European governments.
It stipulates that NGOs receiving more than half of their funding from foreign governments will have to declare it in all their official reports.
At the request of Netanyahu, however, a proposed requirement for NGO members to wear a badge indicating their organisation is funded by a foreign country was dropped.
"I do not understand how a requirement for transparency is anti-democratic; the opposite is true," Netanyahu said last month. "In a democratic regime, we need to know who is financing such NGOs, from the right, the left, up or down."
You’ve reached your limit of {{free_limit}} free articles this month.
Subscribe now for unlimited access.
Already subscribed? Log in
Subscribe to read the full story →
Smart Quarterly
₹900
3 Months
₹300/Month
Smart Essential
₹2,700
1 Year
₹225/Month
Super Saver
₹3,900
2 Years
₹162/Month
Renews automatically, cancel anytime
Here’s what’s included in our digital subscription plans
Exclusive premium stories online
Over 30 premium stories daily, handpicked by our editors


Complimentary Access to The New York Times
News, Games, Cooking, Audio, Wirecutter & The Athletic
Business Standard Epaper
Digital replica of our daily newspaper — with options to read, save, and share


Curated Newsletters
Insights on markets, finance, politics, tech, and more delivered to your inbox
Market Analysis & Investment Insights
In-depth market analysis & insights with access to The Smart Investor


Archives
Repository of articles and publications dating back to 1997
Ad-free Reading
Uninterrupted reading experience with no advertisements


Seamless Access Across All Devices
Access Business Standard across devices — mobile, tablet, or PC, via web or app
