Israel has introduced one of the world’s toughest curbs on bank executives’ salaries in an effort to narrow a big pay gap between bosses and workers.

The legislation was pushed through by the finance minister, Moshe Kahlon, who, before last year’s parliamentary elections, ran on a platform of lowering the cost of living and reforming Israel’s banks. It was approved in parliament overnight in a 56-0 vote and will take effect in six months.

Bankers’ pay is a sensitive issue in Israel, especially since banks make large profits partly from a wide variety of fees on such things as deposits and withdrawals.

According to parliament’s finance committee, salaries at financial firms have grown substantially in recent years and a quarter of the 40 listed companies in Israel with the highest pay levels are financial ones.

“There is a moral significance beyond the economic significance in this law,” Kahlon said on Tuesday. “It symbolises narrowing pay gaps, solidarity and consideration for the weak.“

Under the new law, which also applies to insurance companies, total compensation will be capped at 2.5 million shekels (£460,000) a year, or no more than 44 times the salary of the lowest worker at the company. Anything above the ceiling will be subject to higher taxes.

Senior bankers’ compensation has risen to as much as 8 million shekels a year, a big multiple of Israel’s average wage of 115,000 shekels.

In Europe, there has been resistance to any mandatory ratio of top pay to bottom ranking pay, while in the US, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, financial firms have to disclose what the ratio is, but there is no binding ratio.

Under an amendment made to the EU shareholder rights directive last year, companies listed in Europe are required to hold a shareholder vote on pay every three years. An attempt to insert a cap on pay was rejected.

Israel’s law gained widespread support from the country’s governing coalition and opposition, but banks were opposed to it. Some commentators called it a populist measure that might lead to higher costs for the public if banks were to retaliate by raising their charges for customers.

Israel’s Association of Banks said the law could disrupt labour relations in the financial sector, while a spokesman for the group said it was likely to lodge an appeal at the country’s supreme Court.