The law was endorsed by Israel's highest court by the narrowest of margins and has come under harsh criticism from human rights activists.
The Cabinet extended the law for another six months but acknowledged that the situation is complex. Therefore, the extension would be brought before the parliament, and a new law would be drawn up.
The law allows husbands from the West Bank or Gaza to live in Israel if they are over the age of 35 and wives over 25. Others are banned.
Israel enacted it in 2002 at the height of Palestinian-Israeli violence, after a Palestinian who gained Israeli citizenship carried out a bombing.
Last month Israel's Supreme Court rejected an appeal against the law by a vote of 6-5, determining that while it harms human rights, it also protects security, and that took precedence.
Sunday's Cabinet statement said the court decision criticising the complexity of the law was the reason for the short extension, and added, "comprehensive staff work regarding the preparation of legislation that will determine procedures for granting status in Israel to foreign nationals, mainly the foreign spouses of Israeli citizens."
Critics of the law called it racist, but government officials said it was necessary as a tool in the fight against Palestinian "terrorism".
The law is said to have kept
hundreds of Palestinians out
Since signing an interim peace accord with the Palestinians, Israel has approved 6,000 or the 22,000 family reunification requests it has received, according to the government.
The restrictions are believed to have kept hundreds, and possibly thousands, of West Bank and Gaza Palestinians from moving to Israel. Exact numbers are not known.
The restrictions also cut to a sensitive demographic issue - the fear that the country's Jewish majority could be threatened if too many Palestinians are granted citizenship.
Arab citizens make up about 20% of Israel's population.