In a report published last Tuesday, Amnesty International charged that the law "formally institutionalises a form of racial discrimination based on ethnicity or nationality".
The law has forced many Israeli Arab citizens and residents of Arab East Jerusalem who hold Israeli identification papers to live illegally with their Palestinian spouses in Israel or move to the occupied West Bank and Gaza.
For couples that decide to stay in Israel, their Palestinian spouses have no health insurance or other social rights and "every day fear arrest, expulsion and separation from their spouses or children," the London-based watchdog said.
The controversial law had originally been expected to be extended by a year, but the extension period was cut by half in line with a proposal from Attorney General Menachem Mazuz on Thursday.
The cabinet also agreed to establish a ministerial committee headed by Interior Minister Avraham Poraz to amend the law to facilitate the reunification of families deemed a low security risk.
Intelligence chiefs had argued strongly for the extension of the Citizenship and Entry into Israel Law, which was passed on to the statute books by MPs for a 12-month period on 31 July 2003.
The head of the Shin Beth internal security service, Avi Dichter, told ministers that marriages with Israeli Arabs had allowed some 100,000 Palestinians to settle in Israel over the past decade.
He alleged that they or their children had gone on to be involved in anti-Israeli attacks in 26 cases, but did not provide evidence to support his claim.
Israeli and international human rights watchdogs have strongly rejected any security justification for the law, arguing that its real motivation is to maintain a Jewish majority in Israel, where some 20% of the population is of Palestinian descent.