Loyalty pledge criticised as 'fascist' and an affront to country's Palestinian citizens, who make up 20% of population

The Israeli cabinet today approved a bill requiring new non-Jewish citizens to swear an oath of allegiance to Israel as a "Jewish and democratic state", in a move that has brought accusations of discrimination against Israel's Arab minority. One dissenting cabinet minister referred to a "whiff of fascism".

The bill, originally promoted by the rightwing foreign minister, Avigdor Lieberman, who has made the issue of loyalty a hallmark of his political career, was passed by a big majority despite the opposition of Labour party members.

The loyalty oath will be required of non-Jews seeking to become Israeli citizens, mainly affecting Palestinians from the West Bank who marry Palestinian citizens of Israel.

The latter, who make up 20% of Israel's population, have vigorously criticised the proposal – which needs approval from the Knesset before becoming law – as provocative and racist. It has also drawn protests from Israeli Jews, including those in the cabinet.

Isaac Herzog, the social affairs minister, told Israel's army radio: "There is a whiff of fascism on the margins of Israeli society. The overall picture is very disturbing and threatens the democratic character of the state of Israel. There have been a tsunami of measures that limit rights ... We will pay a heavy price for this."

Lieberman campaigned in last year's election for a loyalty oath to be required of all existing Palestinian citizens of Israel. The bill put to the vote today drew back from that, applying only to future citizens. "I think this is an important step forward. Obviously this is not the end of the issue of loyalty in return for citizenship, but this is a highly important step," Lieberman said.

At the start of the cabinet meeting, the prime minister, Binyamin Netanyahu, said: "The state of Israel is the national state of the Jewish people and is a democratic state in which all its citizens – Jewish and non-Jewish – enjoy full equal rights ... Whoever wants to join us, has to recognise us."

It was suggested that Netanyahu backed the bill as a quid pro quo for support from rightwing parties within his coalition government should he bow to US pressure to extend the freeze on settlement construction. The moratorium, which expired two weeks ago, is threatening to scupper talks on a peace deal with the Palestinians.

Ahmed Tibi, an Israeli-Arab member of the Knesset, condemned the cabinet's decision. "The government of Israel has become subservient to Yisrael Beiteinu [Lieberman's party] and its fascist doctrine," he said. "No other state in the world would force its citizens or those seeking citizenship to pledge allegiance to an ideology."

The speaker of the Knesset, Reuven Rivlin, also criticised the proposal. "This law will not assist us as a society and a state," he said. "On the contrary, it could arm our enemies and opponents in the world in an effort to emphasise the trend for separatism or even racism within Israel."

Likud cabinet members Dan Meridor, Benny Begin and Michael Eitan opposed the bill along with Labour ministers.

Writing in today's Haaretz, liberal commentator Gideon Levy said: "Remember this day. It's the day Israel changes its character ... From now on, we will be living in a new, officially approved, ethnocratic, theocratic, nationalistic and racist country."