Israel’s supreme court has overturned a law at the heart of Benjamin Netanyahu’s controversial judicial overhaul project, potentially plunging the country into political crisis as it fights a war in Gaza and faces the spectre of regional escalation.

The judges ruled on Monday by a slim majority of eight to seven to throw out a law that curtailed the court’s own powers, saying it would severely damage Israel’s democracy.

In July, after seven months of debate, the government passed a law scrapping the “reasonableness” clause that allows Israel’s unelected supreme court to overrule government decisions.

The ruling to throw out that legislation, made in a historic first full sitting of the 15-member court, could reignite tensions that roiled Israel over the summer and split the unity government in the wake of Hamas’s 7 October attacks.

The judicial overhaul project led to months of mass protests that brought Netanyahu’s government under domestic and international pressure. It widened already deep religious, ethnic and class divides in Israel, threw the military into chaos and damaged both its currency – the shekel – and relations with allies. The US president, Joe Biden, at the time was critical of the plans.

Attorney Gil Gan-Mor, who represented 38 human rights organisations in a joint petition challenging the law, welcomed the ruling, saying it had thrown out “an attempt to infringe upon the human rights of every Israeli citizen and thwart judicial oversight of government decisions”.

Activists had argued that “in the absence of a robust constitution safeguarding human rights”, the supreme court’s ability to throw out legislation was “indispensable for the preservation of democratic governance and human rights”.

This is the first time Israel’s supreme court has overturned a quasi-constitutional “basic law”. Several government ministers indicated previously they would consider any such ruling illegitimate, and not comply with it.

But in a blow to that position, 12 justices said as part of the broader ruling that the supreme court had a right to overturn basic laws.

Netanyahu did not immediately respond to the decision, but his Likud party said it went against a national desire “for unity” during wartime.

“It is unfortunate that the supreme court chose to bring a ruling at the heart of the social dispute in Israel precisely when IDF soldiers on the right and the left are fighting and risking their lives in the campaign,” the party said in a statement.

The former president of the supreme court Esther Hayut, one of the judges who backed the ruling, argued the war made the ruling even more urgent, as it concerned the core principles for which Israeli soldiers were risking their lives.

“Even at this difficult time, the court must fulfil its role and decide the issues brought before it, all the more so when it comes to issues concerning the characteristics of Israel’s basic identity as a Jewish and democratic state.”

The activist group Kaplan Force, one of the main organisers of protests against the legislation, welcomed the ruling as “a victory for the citizens of Israel” in the battle for democracy.

“This is the time to thank the millions who took to the streets and defended with their bodies Israeli democracy, the values of the declaration of independence and their gatekeepers (the supreme court),” the group said in a statement.

“Now the ruling must be respected and the entire nation united around the values of the declaration of independence.”