A controversial national loyalty oath took a step closer to becoming law on Wednesday as Prime Minister Benjamin Netanyahu lost a battle to soften the wording of a new citizen's declaration.

Ministers approved a draft of the proposed oath, which would require anyone taking Israeli citizenship to swear allegiance to Israel as a "Jewish and democratic state".

Open gallery view Avigdor Lieberman. Credit: Michal Fatal

The government now looks almost certain to pass the ammendment to Israel's citizenship law in a vote on Sunday. The debate will then pass to the Knesset's legislative committee and final to a full parliamentary vote.

Attempts to enforce recognition of Israel as uniquely Jewish have been deeply controversial, particularly among Israel's Arab citizens, who make up a fifth of the country's population.

"Netanyahu has opened the legislative season with racism which he has inspired himself," said Mohammed Barka, an MK for the Hadash party, in response to Wednesday's decision. "The ammendment to the citizenship law is completely racist [...] Israel's lawbooks are becoming a guide for the world's most discriminatory and racist regimes'."

In an effort to calm tensions, Netanyahu in July proposed an alternative, less devisive wording, which defined Israel as "the nation state of the Jewish people which grants full equality to all of its citizens".

But the draft approved Wednesday is almost identical to the version originally put forward by hardline Justice Minister Yaakov Ne'eman and will be seen as a victory for right-wingers in Netanyahu's coalition – not least firebrand Foreign Minister Avigdor Lieberman, whose ultra-nationalist Yisrael Beiteinu party made 'loyalty' the center of its campaign.

Sources close to Netanyahu said the prime minister had decided to approve the proposed legislation in light of continuing peace talks, in which he has repeatedly pressed the Palestinians to recognize Israel as a Jewish state.

"What we demand of the Palestinians, we must demand of our own citizens too," a Netanyahu confidante said.

Yisrael Beiteinu praised the move.

"The government is fulfilling an important obligation as part of its coalition agreement with Yisrael Beiteinu," the party said in a statement. "The duty of every Israeli citizen to safeguard the State of Israel as Jewish and democratic [...] is both essential and fundamental."