The Israeli government agreed Monday on a state budget for the first time in three years after a political crisis that saw four general elections.

In a key test for the coalition government, the budget must be approved by parliament by November 4 and garner at least 61 votes in the 120-seat Knesset.

"Israel has a budget" for the years 2021 and 2022, Prime Minister Naftali Bennett said after a night-long voting session.

"After three years of stalemate, Israel is returning to work," he added.

A protracted political crisis under former prime minister Benjamin Netanyahu generated political instability that saw four general elections in two years, and prevented the passing of a state budget.

Israel's new government is a union led by religious nationalist Bennett, who allied with centrist Yair Lapid to form an ideologically disparate eight-party bloc.

The coalition which includes leftists and Arab Islamic conservatives ended 12 years of Netanyahu's uninterrupted rule.

Failure by parliament to approve the budget would result in the Bennett government's collapse and new elections.

The Israeli government approved a budget for the years 2021 and 2022 after a three-year stalemate but it still needs parliament's endorsement The Israeli government approved a budget for the years 2021 and 2022 after a three-year stalemate but it still needs parliament's endorsement Photo: POOL / ABIR SULTAN

According to the finance ministry, the budget for 2021 will be 432.5 billion shekels ($134 billion), while 452.5 billion shekels ($140 billion) are allocated for 2022.

Finance Minister Avigdor Lieberman said the focus of the reforms in the budget was "lowering the cost of living".

"We have invested vast sums in infrastructure, transportation and real estate and passed significant reforms that will lower barriers and reduce the bureaucracy, which will make things easier for everyone in our daily management, business or private," he said in a statement.

Netanyahu, currently head of the opposition, slammed the government for raising taxes, despite its promises to the contrary, a move he said would slow economic growth.

"It's raising the price of electricity and bread, it's taxing internet purchases and more," he said of the government.

"They're doing it to fund the 50 billion shekels they promised Mansour Abbas," Netanyahu said of the head of Raam, the Islamist party that is supporting Bennett's coalition.

On the other hand, the head of the Yesha Council, a settlement lobbying group, thanked the government for its "hard work" in support of settlements in the occupied West Bank.

"I'm happy that through cooperation we've managed to pass another budget that will help develop this important part of the land," David Elhayani said.

Interior Minister Ayelet Shaked of Bennett's Yamina party said on Twitter that the budget increased funding for settlements as well as West Bank infrastructures.