The bill targeting the Islamic faction was initiated by Knesset member Yisrael Katz, but it failed to gain adequate support with 26 votes in favor and 46 against the motion, Ynetnews reported.
After the proposal failed to pass, Katz criticized his fellow politicians for failing to act against Sheik Raed Salah's controversial faction. Katz said "the behavior of the government is a serious strategic failure which allows Salah and his band to abuse Israeli democracy to destroy it from within, as has happened in other places in the past."
Salah previously had been convicted on charges that members of his organization helped launder money for Hamas.
Ynetnews said the Knesset did pass a preliminary reading Wednesday of a proposal that would take all financial benefits away from any Knesset member charged with any security offense.