Israeli Defense Ministry officials were holding talks with officials in the Finance Ministry to explore ways to allow the program's development to go ahead, Israeli media reported Tuesday.
"As with all working plans that belong to the IDF [Israeli army] and the Defense Ministry, this has not been finalized yet," The Jerusalem Post quoted an unnamed Defense Ministry official as saying.
The missile defense system is being jointly developed by Israel and the United States. However, a $55 million funding cut by Washington was not offset by an increase of funds from Jerusalem, Ma'ariv reported Monday.
Initially it was estimated four Arrow 3 batteries would become operational in 2014 and 2016, and four additional batteries at a later date, the Post said. It was unclear when the system would become operational because of the financial constraints, the newspaper said.
An unnamed Defense Ministry official told The Times of Israel a decision to cut the budget is not final and a number of options were being explored.
Uzi Rubin, former director of Israel's Missile Defense Organization, told the Times budget cuts causing a slowdown in the Arrow 3's development will have an impact on Israel's security.
Israel conducted a successful test of the Arrow 3 system in February. The system is designed to deal with nuclear payloads by hitting long-range intercontinental ballistic missiles after they have left the atmosphere, reducing possible fallout from a detonation, the Times said.
Arrow 3 is part of Israel's four layers of missile defense, which include the Iron Dome missile system for short- and medium-range rockets; David's Sling, which is under development and designed to target medium- and long-range rockets; and the Arrow 2 system that intercepts projectiles in the upper atmosphere.