The Israeli parliament has been accused of passing a "racist" piece of legislation that would see Palestinian citizens of Israel screened from living in almost half of the country's small villages and towns.

The so-called "admissions committees" law passed on Tuesday would strengthen a controversial 2011 piece of legislation that allows those same panels - made up of members of the local community - to screen applicants for housing units and plots of land in hundreds of Jewish Israeli "community towns" built on state land.

Human rights campaigners have stressed that this is aimed at giving small Jewish communities the power to prevent Palestinians from buying or renting homes. There are almost two million Palestinian citizens of Israel, who are estimated to make up 20 percent of the country's population.