Israel's parliament Monday approved a law effectively banning Israelis from calling for boycotts of any part of the country or its settlements on occupied Palestinian land, a parliamentary source said.
The vote was passed by 47-36 out of 120 members of parliament.
Activists and intellectuals had criticised the controversial bill, accusing the lawmakers behind it of stifling free speech and compromising Israel's democracy.
The vote came in the wake of several calls within Israeli society for the boycott of institutions or individuals linked to West Bank settlements.
Earlier this year, a group of Israeli academics signed a petition calling for a college in the West Bank settlement of Ariel to be boycotted.
And last year, 53 leading Israeli artists signed a statement pledging not to perform at a cultural centre at the same settlement.
Under the new law, those calling for similar boycotts could be sued by any individual or institution claiming economic, cultural or academic damage as a result of the boycott.
The bill does not require the petitioner to prove the damage was caused, but only that the damage could reasonably have been expected as a result of the boycott call.
It covers all calls for boycotts of people or institutions with ties to "the state of Israel, one of its institutions, or an area under its control, in such a way that may cause economic, cultural or academic damage."
The bill was sponsored by a lawmaker from the Likud party of Prime Minister Benjamin Netanyahu. The premier did not himself vote.
Anyone convicted of breaking the new law faces being slapped with a fine of up to 50,000 shekels (around 10,000 euros).
Speaker Reuven Rivlin and the parliament's legal advisor, Eyal Yinon, had said earlier the supreme court could strike the new law down as a violation of free speech.
Israel media had also reported that the bill's second and third readings could be postponed, as advisors to Netanyahu warned against timing a vote with a meeting of the international peacemaking Quartet in Washington.
The bill has stirred fierce opposition from rights group, including the Association for Civil Rights in Israel, which calls it "a direct violation of freedom of expression."
The group's executive director Hagai El-Ad said the bill "represents the current unfortunate crest in a wave of anti-democratic legislation that is gradually drowning Israel's democratic foundations."
Haaretz, Israel's leading left-wing newspaper, similarly criticised the bill in an editorial on Monday, warning that it would "subvert Israeli democracy."
"Knesset members who vote for this law must understand that they are supporting the gagging of protest as part of an ongoing effort to liquidate democracy," the editorial said.
