Following the mid-afternoon vote, Tel Aviv share indices slid and closed 2.3% lower, while the shekel shed 1.4% to reach 3.68 against the dollar, its weakest since July 12. Government bond prices fell as much as 1.8%.

The amendment to a law enabling the Supreme Court to void some government decisions if it deemed them "unreasonable" passed parliament by a 64-to-0 vote after opposition lawmakers abandoned the session, some of them shouting: "For shame!"

In protest at the vote, a forum of some 150 of Israel's largest companies held a strike on Monday. Azrieli (AZRG.TA) and Big (BIG.TA), two of Israel's largest malls, said stores in their shopping centres would be closed.

Early in the session, optimism that an accord could be reached ahead of the vote on contested changes - following mass protests from both sides on Sunday - had pushed the shekel up more than 1% versus the dollar to a rate of 3.5817.

Israel's president and the head of the country's largest labour union tried to mediate a compromise between the government and opposition ahead of the vote in a bid to ease a constitutional crisis convulsing the country for months.

But news that compromise talks collapsed erased early gains and sent the shekel weaker, with losses deepening after the vote.

In a sign that the situation could get worse, Arnon Bar-David - the head of Israel's Histadrut labour federation - said he would consult with union officials about declaring a general strike in the economy.

"From this moment on, any unilateral progress in the reform will have serious consequences ... Either things will progress with broad agreement or they will not progress at all," he said, adding that differences between the two sides were minor but mediation efforts failed due to political whims.

There could also be an effect on inflation and interest rates. The Bank of Israel paused its more than one-year long tightening cycle on July 10 on signs that inflation was easing.

But minutes from the discussions showed that policymakers would raise rates further should the shekel's weakness renew prices pressures. The central bank estimates the exchange rate has an influence of up to 20% on inflation.

"The trend of depreciation in the shekel partly reflects some increase in the economy’s risk premium, and to the extent that the trend of depreciation continues, it is liable to weigh on the convergence of inflation to its (1-3%) target," the MPC surmised.

The shekel has weakened some 10% versus the dollar since late January when the government unveiled its controversial judicial overhaul plan, setting off mass protests and harming foreign inflows.

Netanyahu has been urged by Washington to reach a compromise with the opposition, but his hard-line coalition partners have pushed for the legislation to go ahead with more judicial changes to follow.

His coalition has been determined to push back against what it describes as overreach by a Supreme Court.