Israel's parliament has adopted a law defining the country as the nation state of the Jewish people, provoking fears it will lead to blatant discrimination against Arab citizens.

The legislation, adopted by 62 votes to 55, makes Hebrew the country's national language and defines the establishment of Jewish communities as being in the national interest.

The Arabic language was granted only special status.

The law speaks of Israel as being the Jewish historical homeland and says Jews have the right to self-determination there.

However, a deeply controversial clause that had been seen as more specifically legalising the establishment of Jewish-only communities was changed after it drew criticism, including from Israeli President Reuven Rivlin.

The legislation becomes part of the country's basic laws, which serve as a de facto constitution.

"It is a decisive moment in the history of the state of Israel that inscribes in stone our language, our anthem and our flag," Israeli Prime Minister Benjamin Netanyahu said after the vote on the legislation, backed by his right-wing government.

A range of opposition members denounced the vote, with the head of the mainly Arab Joint List alliance Ayman Odeh describing it as "the death of our democracy".

Fellow Arab politician Ahmed Tibi described the legislation as a "hate crime".

The European Union has said it is concerned about the new law, and has said it would complicate a two-state solution to the Israel-Palestinian conflict.

"We are concerned, we have expressed this concern and we will continue to engage with Israeli authorities in this context," a spokeswoman for EU foreign affairs chief Federica Mogherini told a news briefing.

"We've been very clear when it comes to the two-state solution, we believe it is the only way forward and any step that would further complicate or prevent this solution of becoming a reality should be avoided," she said.

The law stipulates that "Israel is the historic homeland of the Jewish people and they have an exclusive right to national self-determination in it".

Turkey, a former ally of Israel, also criticised the law.

"Identifying the right to self-determination as a right given only to Jews is the result of an outdated and discriminatory mentality," the foreign ministry said in a statement.

A spokesman for President Recep Tayyip Erdogan called on the international community "to react to this injustice happening in front of the entire world's eyes".

Presidential spokesman Ibrahim Kalin criticised what he called "this racist move that amounts to erasing the Palestinian people from their homeland physically and legally".

The law also strips Arabic of its designation as an official language alongside Hebrew, downgrading it to a "special status" that enables its continued use within Israeli institutions.

Israel's Arabs number some 1.8 million, about 20% of the 9 million population.

The two-state solution envisaged under an international peace framework, in which Palestinians living in Gaza and the occupied West Bank would gain their own state, is already looking like a dim prospect.

Peace talks have been stalemated for several years and Israeli settlements in the occupied lands have expanded, despite condemnation from the EU and other bodies.