Hundreds of thousands of people fanned out in Tel Aviv overnight, burning tires, setting off fireworks and waving national flags.
In central Jerusalem, police mounted on horses unleashed water cannons and a foul-smelling spray at protesters, arresting nearly 40 people.
Demonstrators take down a riot police barrier during a protest rally (Photo: Getty Images)
The growing crisis has opened a deep divide in Israeli society, hitting the economy hard by triggering foreign investor flight, weakening the shekel and prompting a threats of a general strike by the Histadrut public sector union.
A Foreign Office spokesman said: "As the Prime Minister discussed with prime minister Benjamin Netanyahu earlier this year, the UK's strong relationship with Israel has always been underpinned by our shared democratic values.
"While Israel's exact constitutional arrangements are a matter for Israelis, we urge the Israeli government to build consensus and avoid division, ensuring that a robust system of checks and balances and the independence of Israel's judiciary are preserved."
It has also strained ties with Israel's closest ally, the United States, which called Monday's vote "unfortunate".
Israeli police detain a demonstrator during a protest rally (Photo: Getty Images)
Netanyahu and his allies have also been accused of trying to erode the country's checks and balances and consolidate power over the third, independent branch of government.
But in a televised address on Monday night, Netanyahu rejected such criticism.
He said: "Today we did a necessary democratic act, an act that is intended to return a measure of balance between the branches of government.”
Netanyahu also vowed to seek renewed dialogue with the political opposition and called for national unity.
