Communications Minister Ayoub Kara told a press conference that he meant to ask the Government Press Office, an official body in charge of issuing press cards, to revoke the credentials of Israel-based Al-Jazeera's reporters.
The minister said that both Arabic and English-language channels of Al Jazeera would be banned. However, no timetable for the measures was given.
Marwan Bishara, Al Jazeera senior political analyst, said the latest move by Israel shows a "synergy" of "dictatorships" in the Arab world and "dictatorship of military occupation in Palestine".
"Censoring Al-Jazeera or closing its offices will not bring stability to the region, but it would put Israel firmly in the camp of some of the region's worst enemies of press freedom", said Sherif Mansour, the committee's Middle East and North Africa program coordinator. The closure of Al-Jazeera's offices would come under the remit of security officials.
He said that cable broadcasters had agreed to his proposal to take the station's Arabic and English channels off the air.
"The collusion by Netanyahu with his Arab autocratic neighbors leaves little doubt that free independent media and truth are ready to be sacrificed as collateral damage in the power politics of the region", Al Jazeera's Jerusalem bureau chief, Walid Omary, wrote in an opinion piece in the Israeli newspaper Haaretz.
Israeli Prime Minister Benjamin Netanyahu recently accused the broadcaster of incitement.
Al Jazeera has condemned the decision.
Protests erupted at the contentious site after Israel last month installed new security measures including metal detectors, following the shooting dead of the two Israeli policemen by attackers who emerged from the compound.
Israeli officials have long accused al-Jazeera of bias against the Jewish state.
The Legal Center for Arab Minority Rights in Israel, also known as Adalah, also challenged the plan, saying that it would be subject to scrutiny before the Supreme Court, adding that "it would fail the test of legality". He has frequently criticised the news media, accusing outlets of seeking to undermine his government.
Palestinians refused to enter the site for almost two weeks over the new security measures imposed after three Israeli Arabs shot dead the policemen nearby.