Prime Minister Benjamin Netanyahu has temporarily halted the passage of the NGO funding law following the opposition of Attorney General Yehuda Weinstein.
In a rare intervention, Mr Weinstein wrote to the Prime Minister last week saying that the new law was "unconstitutional" and therefore would be "indefensible in the Supreme Court". The Attorney General made it clear that this would be his position both in the Court and in the Knesset.
The law, which was proposed by members of Likud and Yisrael Beiteinu, forbids left-wing NGOs from accepting funding from foreign governments and passed its first reading in the Knesset last month.
However, following intense criticism from within Israel and governments in the West, including Foreign Secretary William Hague, Mr Netanyahu planned to revise some of the clauses.
Having seen the Attorney General's written opinion, the prime minister put the legislative process on hold for what his office called "consideration" before proceeding towards the final readings in the Knesset.
Meanwhile, the coalition was forced this week to postpone the final votes on the "Grunis Law", which would remove the minimum period which a Supreme Court president has to serve, thereby allowing the appointment of conservative judge, Asher Grunis, in two months.
The opposition parties lodged over 5000 objections to this law, necessitating a filibuster of 27 hours in which to discuss them. The coalition decided to postpone the session due to the fact that the opposition can end the filibuster as soon as it has a majority, and overturn the proposal.
The session will take place sometime later this month when the coalition has mustered enough Knesset members to sit out the entire filibuster.