If the bill is passed it will require Israeli NGOs which get at least half of their funds from foreign governments to identify donors on their financial statements and in official statements to public bodies.
It would also compel staff from such non-governmental organisations to wear special identity tags when appearing in front of parliamentary committees, as is currently the case with paid lobbyists.
US Ambassador Daniel Shapiro, in a statement after meeting the bill's chief sponsor Justice Minister Ayelet Shaked, said he had "noted the US government's concerns" over the legislation.
Israeli officials have suggested the law is similar to the US law known as FARA.
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"The draft Israeli law would target NGOs simply because they are funded principally by foreign government entities. That is not how FARA works," the statement said.
"As a result, (FARA) does not create the chilling effect on NGO activities that we are concerned about in reviewing the draft Israeli NGO law."
Shaked, a member of the far-right Jewish Home party, has repeatedly accused foreign-backed NGOs of being "blatant interference in internal Israeli affairs by foreign governments."
Several leftwing Israeli NGOs receive large percentages of their funding from abroad, including from European governments.
Rightwing NGOs tend to be funded by private individuals, also often outside Israel, and so would not be subject to the restrictions.
Leftwing NGOs say the bill singles them out, with settlement watchdog Peace Now calling it "a hate crime against democracy".
The justice ministry was not immediately available for comment.