Israeli MPs passed the controversial bill despite mass protests aimed at stopping it.
The law removes the Supreme Court’s power to overrule government actions it deems unjust.
It was the first of a series of bitterly contested reforms aimed at curbing the power of the courts.
The planned reforms have sparked some of the largest protests in Israeli history, with opponents warning that they threaten Israel as a democracy.
The government argues that the measures are necessary to correct an imbalance of power that has seen the courts increasingly intervene in political decisions in recent decades.
The so-called “reasonableness” bill was approved by 64 votes to 0, after the opposition boycotted the final vote.
In speeches in the Knesset (parliament), opposition leader Yair Lapid called the move “a takeover of an extreme minority from Israel’s majority”.
Israel’s Justice Minister Yariv Levin however congratulated the MPs, telling them: “We have taken the first step in a historic process to correct the judicial system.”
The vote brought to a head months of unrest, with Israel’s president warning political leaders on Monday that the country “is in a state of national emergency”.
On Monday morning protesters blocking a boulevard outside the Knesset were sprayed with water cannons and pulled off the road by police amid a din of drums, whistles and air horns.
One protester was injured, local media said, and six were arrested, police said. Other protesters surrounded a police van shouting “shame” at the officers.
A demonstrator lying in the street told the BBC he was against “dictatorship”, adding that his grandfather was a codebreaker during the war against the Nazis at the UK’s famous Bletchley Park.
Asked how long he would stay put he said: “We will not surrender”.
Another, Reut Yifat Uziel, the daughter of a paratrooper depicted in an iconic photo of Israel capturing the Western Wall in the 1967 Middle East war, said she feared for her children’s future.
“Netanyahu has kidnapped the country and I am worried that it will become a theocracy,” he said.
The protesters – tens of thousands of whom marched about 45 miles (70km) from Tel Aviv to Jerusalem at the end of last week – are trying to block the passage of the first bill in a package of reforms.
The prime minister, Benjamin Netanyahu, was in parliament for hours to vote after being released from hospital following unscheduled surgery for a pacemaker on Saturday.
The controversial reforms have polarized Israel, triggering one of the worst domestic crises in the country’s history.
Hundreds of thousands of demonstrators have taken to the streets every week since the start of the year to protest what they say is an attack on democracy. The government says the reforms serve to strengthen democracy, arguing that the Supreme Court has gained too much political power in recent decades.
Deepening the crisis, thousands of reservists, including air force pilots who are vital to Israel’s offensive and defensive capabilities, have vowed not to volunteer for service. Such an unprecedented defiance has alarmed the potential impact on Israel’s military readiness.
Former heads of Israel’s security services, chief justices, and prominent legal and business figures have also spoken out against the government’s reforms.
The measures have also been criticized by US President Joe Biden, who in his most outspoken comments has called for the “divisive” bill to be postponed.