Israel’s Supreme Court struck down a landmark deal on Sunday regulating exploitation of Mediterranean gas reserves, which is a major defeat for Israeli Prime Minister Benjamin Netanyahu who called the ruling "mystifying".
A panel of the court justices said in their ruling that a clause in the deal that prevented it from being altered for a decade was unacceptable.
"We have decided to cancel the gas deal because of the stability clause" that would have barred future governments from changing the deal, they said.
However, the court suspended the ruling for a year to give the parliament an opportunity to amend the agreement.
Israel's development of its Mediterranean reserves hold serious implications for the country's efforts toward energy independence. It may also have an impact on regional diplomacy since Israel is expected to export some of its gas.
Netanyahu who promoted the agreement and even appeared at the court to defend it, used an obscure clause to override the anti-trust authorities. That allowed it to move forward with the approval of the economy minister, a portfolio he holds after the previous one resigned over the gas deal.
The court’s ruling was praised by critics of the deal between the Israeli government and a consortium such as US firm Noble Energy, as Netanyahu said that it threatened the development of Israel’s gas reserves.
Members of the opposition parties, some of whom were part of the petition against the deal, also praised the court ruling.
Opposition leader and Labour head Isaac Herzog described the court ruling as “correct and courageous”.
"The government can't bind its hands and judgement," Herzog said on Twitter of the stability clause.
Netanyahu expressed his disagreement saying that the ruling posed a "severe threat to the development of Israel's gas reserves."
"Israel is perceived as a country with exaggerated legal intervention, in which it is hard to do business," Netanyahu said in a statement.
"Nobody has reason to celebrate the fact the gas might remain in the depth of the sea, and hundreds of billions of shekels won't reach Israeli citizens," he said.
"We'll find other ways to overcome the severe damage to Israel's economy following this mystifying ruling," he added.
Israel’s Justice Minister Ayelet Shaked described the ruling as a "crude and unnecessary intervention in a government decision".
"It is unacceptable that the government holds the responsibility to the economy and prosperity of the state, but remains without the necessary authority to take action," Shaked said in a statement.
The deal will now have to return to parliament where its supporters would struggle with fierce opposition and a small majority that might oppose its passing in a similar format.
However, the Leviathan consortium was hopeful on the possibility of moving ahead with the planned development of the reservoir.
"The court in its ruling accepted the entire gas deal except for the stability clause," the Leviathan consortium said in a statement.
"The judges also realise the necessity of regulatory stability and creating conditions to enable the necessary investments to seek and develop gas reservoirs," they said.
"We call upon the government to swiftly regulate the stability conditions so we can meet the deal's goals, first and foremost developing Leviathan by 2019," they added.
The landmark gas deal was agreed in December with Noble and its Israeli partner Delek. The deal would have regulated the development of the Leviathan field in the eastern Mediterranean, one of the biggest natural gas discoveries as well as other issues.
The consortium is said to have agreed to invest $1.5 billion to develop the Leviathan field over the next two years.
Failing to meet the requirement would make the Israeli government back out of a commitment not to change fiscal and regulatory terms for the gas industry until 2025.
Israel has been trying to extract offshore gas since the discovery of the Tamar and Leviathan fields in 2009 and 2010. Production has started in Tamar as Leviathan has been hit by a series of delays.
The size of the Leviathan field is estimated at 18.9 trillion cubic feet (535 billion cubic metres, or bcm) of natural gas, along with 34.1 million barrels of condensate.
Noble and Delek also control Tamar, which holds 250 bcm of natural gas, and lies 80 kilometres (40 nautical miles) west of the Israeli port of Haifa.