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A vote on a controversial law that would cut government subsidies to cultural institutions deemed "disloyal" to Israel was on Monday postponed indefinitely, Israel's culture minister said.

The bill, submitted by Culture Minister Miri Regev, would give the finance and culture ministries the power to slash subsidies to institutions backing films or plays that do not show "loyalty" to the state.

Such institutions would include those which deny Israel's existence as a "democratic and Jewish state", or those inciting violence, racism or "terrorism".

Any organisation that marks Israel's independence day as a national day of mourning, or present artistic work that attacks the national flag or other state symbols would also be denied funding.

For Palestinians, the anniversary of Israel's 1948 independence marks the Nakba, or "catastrophe", when more than 700,000 fled or were expelled during the war surrounding Israel's creation.

A ministerial committee had voted to advance the bill in October but it needed two more parliamentary readings before becoming law.

Monday's vote was postponed indefinitely because of a lack of a majority, said Regev, a member of Prime Minister Binyamin Netanyahu's right-wing Likud bloc.

The ruling coalition has been left with a narrow majority of one vote in the 120-seat Knesset, or parliament, after Avigdor Lieberman resigned as defence minister earlier this month.