ISRAEL'S security cabinet is in marathon talks on proposed cuts in defence spending of more than a billion dollars, amid mounting public opposition to the finance minister's austerity plans.

Media reports said the talks which began on Sunday morning were likely to go late into the night.

Finance Minister Yair Lapid wants a cut of four billion shekels ($A1.11 billion) to help plug a budget deficit expected to be capped at 4.65 per cent of gross domestic product this year and three per cent in 2014.

To meet his targets he has proposed an increase of 1.5 percentage points in personal income tax, one point in corporate tax and a one-point rise in VAT, together with a cut in family allowances.

On Saturday, thousands of Israelis marched in protest against the austerity budget due for debate by the full cabinet on Monday.

In an attempt to cushion opposition to such unpopular measures, Lapid is seeking to slash the defence budget which, including salaries and pensions, currently makes up eight per cent of GDP, according to central bank data.

In the past the defence establishment and the military industries have blocked such plans and, in fact, won supplements to spending.

In 2012, for example, the budget passed by parliament was 55.5 billion shekels, including annual US military aid of some three billion shekels.

Final spending for the year hit 60.5 billion shekels.

For 2013 and 2014, defence bosses have decided to again seek to foil the treasury's plans.

According to media reports they want several hundred million dollars extra for their five-year equipment purchase programme.

"In the event of war, politicians who cut defence spending will bear the responsibility," army radio quoted unnamed military officials as saying.

Israeli officials cite rising tensions with war-torn Syria and the Damascus regime's Lebanese Hezbollah ally, as well as militants in Egypt's Sinai Peninsula who have fired rockets into the Jewish state.

Lapid tapped into middle class grievances over the cost of living and social injustice to take his newly minted centrist Yesh Atid party to striking success in its first ever election campaign in January.

It became the second-largest party in parliament and a partner in Netanyahu's coalition government.

Lapid warns that if the defence establishment does not accept cuts he will be forced into painful surgery on health, education and social spending.