It "consolidates the notion of occupation and racial segregation, and undermines the chances of achieving peace and reaching a just and comprehensive resolution to the Palestinian issue", the foreign ministry said in a statement.
The law adopted Thursday also defines the establishment of Jewish communities as being in the national interest and downgrades Arabic from an official language to one with special status.
Arab citizens account for some 17.5 percent of Israel's more than eight-million population and have long complained of discrimination.
Turkey accuses Israel of 'apartheid' over controversial new law
The Israeli legislation was also condemned by the six-nation Gulf Cooperation Council, comprised of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.
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