Centrist rivals to Benjamin Netanyahu have announced an electoral alliance to oppose him, hours after the Israeli Prime Minister forged a pact with extremists linked to the banned Kahanist movement.

Former IDF chief of staff Benny Gantz and Yair Lapid, who leads the Yesh Atid party, said they would present a joint list for the April 9 election and rotate the position of prime minister between them in a bid to form Israel's next government.

Late on Wednesday, Mr Netanyahu took a hard turn to the right, agreeing an election deal with two religious-nationalist parties in an effort to unite the fringes of Israel's right wing.

His Likud party will reserve 28th spot on its own list for the Jewish Home, a pro-settler party, on condition that Jewish Home forms a separate joint list with the extremist Jewish Power faction.

The hard-line religious nationalist members of Jewish Power advocate the forced removal of Palestinians and turning Israel into a Jewish theocracy.

They also describe themselves as the successors to the banned Kahanist movement, named after the late Rabbi Meir Kahane, whose Jewish Defense League was labelled a terrorist organisation by the United States.

But analysts said Mr Netanyahu’s arrangement faced a potential legal challenge because it involved placing Jewish Home candidates on two separate lists.

Mr Gantz and Mr Lapid, whose centrist faction will be called the Blue and White Party, delivered a thinly-veiled jibe at the polarised atmosphere created on Mr Netanyahu’s watch.

“The new ruling party will bring forth a cadre of security and social leaders to ensure Israel's security and to reconnect its people and heal the divide within Israeli society,” the two leaders said in a joint statement.

Under their deal, Mr Gantz would serve as prime minister while Mr Lapid would be made foreign minister for the first two-and-a-half years of their government. The two would then bid to swap their roles.

Moshe Yaalon, a former defence minister who had already joined Mr Gantz's party, would become defence minister again under the deal.

Their pact was boosted by another former IDF chief of staff, Gabi Ashkenazi, who joined their roster on Thursday.

Further details for their joint party were due to be announced later on Thursday, just hours before a deadline for Israeli parties to file their candidate lists with the election authorities.