The measure, proposed by Labor party lawmaker Hilik Bar, would make it illegal for Israel to annex any Palestinian land that isn't given over as part of a deal to create an independent Palestinian state.
The conservative Likud-dominated Knesset rejected with the measure on a 44-25 vote, the Jerusalem Post reported Wednesday.
But not before some heated dialogue between members.
"You are reaching a moment of truth, in which you have to look in the mirror of history and realize that we need to separate from the Palestinians," opposition leader Isaac Herzog said to the majority coalition. "If you don't take this opportunity now, history will judge you, because we will become an isolated, binational state."
Majority lawmakers noted with Israel and the Palestinians presently engaged in peace negotiations it isn't up to lawmakers to set the parameters of those talks -- and that any deal reached between the two sides would have to pass the chamber before taking effect.