Lawmakers voted 63 to 57 to press ahead with the draft law, which foresees a gradual but limited increase in the number of ultra-Orthodox Jews doing military service.
The majority of Israeli Jewish men must serve in the military, but the ultra-Orthodox community has been exempt in favour of religious study.
With the military currently fighting a war in Gaza and engaged in daily cross-border fire with Lebanese militant group Hezbollah, the reform was criticised by Defence Minister Yoav Gallant as not going far enough.
"We must not play petty politics on the big backs of IDF (army) soldiers," Gallant said following the parliamentary vote.
"Bearing the burden of military service is a national challenge," he added.
Netanyahu has for years courted ultra-Orthodox and religious nationalist allies, who sit in his governing coalition.
Opposition leader Yair Lapid accused the premier of pushing forward with a conscription bill without "any value" in order to hold onto power.
The vote amounts to "one of the most despicable moments in the history of the Knesset (parliament)," he wrote on social media platform X, accusing the government of pressing ahead with a "law of evasion".
Following the vote, the bill will be examined by parliamentary committees before returning to the full chamber for further debate.
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