Israel's parliament has approved a law that would make the death penalty the default sentence for Palestinians convicted of deadly terror attacks.

Critics have described the new law as discriminatory and several European nations warn it risks undermining "democratic principles".

The new law passed its third and final reading in the Knesset by 62 votes to 48 on Monday, with Israeli Prime Minister Benjamin Netanyahu voting in favour.

The bill stipulates that Palestinians convicted in Israeli military courts of carrying out deadly attacks deemed to be "acts of terrorism" would be executed by hanging within 90 days, with a possible postponement of up to 180 days.

In theory, Jewish Israelis could also be executed under the law - but in practice this almost certainly would not happen, as the death penalty could only be carried out where the intention of the attack was to "negate the existence of the state of Israel".