The vote, on a technical issue regarding jurisdiction of state bailiffs, did not directly challenge the government's survival but highlighted the challenge of governance with the coalition commanding just 61 seats in the 120-member legislature.
"Netanyahu's coalition of 61 is unable to function," MP Karin Elharrar of the opposition Yesh Atid party and sponsor of the private member's bill, said in a statement.
The draft must still pass three more readings before it can become law but it showed the government caught off guard by a united opposition ambush.
"We carried out a classic ambush," opposition leader Isaac Herzog told public radio. "We entered by surprise... Nobody suspected that there would be a majority or that we would even be present there."
Netanyahu's Likud party made no statement following the vote and the party's spokeswoman could not immediately be reached for comment.
In the March 17 general election Likud won 30 seats, while Herzog's Zionist Union trailed with 24.
After weeks of political horse-trading Netanyahu announced formation of a coalition, seen as one of the most rightwing in the country's history.
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