Israel's Supreme Court on Wednesday blocked a close ally of Prime Minister Benjamin Netanyahu from serving as a minister in the new government.
Aryeh Deri, leader of the Ultra-Orthodox Shas party, had been appointed to serve as interior and health minister in the new Cabinet, before taking on the Finance Ministry in the second half of the government's term.
He was also set to serve as Deputy Prime Minister.
The court ruled in favour of a petition that argued Mr Deri's appointment was unreasonable because of his previous convictions and was a breach of Israel's basic laws, which act in place of a constitution.
The veteran politician was previously jailed for bribery and fraud while serving as interior minister and was handed a suspended sentence for tax offences last year, forcing him to resign from the Knesset.
Parliament had to pass special legislation in December for Mr Deri to become a minister. He had previously vowed to retire from politics after his resignation.
The court ruling deals a blow to Mr Netanyahu, who relied on Ultra-Orthodox and far-right parties to secure his comeback in November and is facing a corruption case of his own.
It was his first successful attempt to form a coalition in several years.
“If Aryeh Deri isn’t in the government, there isn’t a government,” Shas minister Yakov Margi told Kan public broadcaster on Wednesday.
The new government has prompted division and outrage in Israel, where thousands have rallied across the country to protest.
More than 70,000 people took to the streets on Saturday in Tel Aviv, known to be a left-leaning and secular city.
On Monday, protests were held at Tel Aviv University and at the Hebrew University of Jerusalem, which has its main campus on Mount Scopus.
Opposition leader and former prime minister Yair Lapid has said he will join protests planned for Saturday to “defend our beloved country from the destruction of democracy”.
Many are concerned over proposals to increase Orthodox influence in Israel, as well as planned reforms to the judiciary.
President Isaac Herzog has said the country is facing a “constitutional crisis” as the government looks to take more control of judge selections and restrict the court's power over the Knesset.
Mr Lapid echoed the President's comments on Wednesday, saying Israel is facing an “unprecedented” constitutional crisis and “will no longer be a democracy” if Mr Deri is not fired.
“A government that does not obey the law is an illegal government,” he said. “It can no longer demand that citizens obey the law.”
