Israeli Defence Minister Moshe Yaalon has resigned, warning that Israel has been taken over by "dangerous and extreme elements".
It comes as Prime Minister Benjamin Netanyahu seeks to bring hardliner Avigdor Lieberman into the coalition, possibly as defence minister.
The deal would shore up Mr Netanyahu's one-seat majority in parliament.
Mr Lieberman has a reputation for inflammatory comments and takes a hawkish stand towards the Palestinians.
If his five-seat Yisrael Beiteinu party joins the coalition, it will become the most right-wing in Israel's history.
Announcing his decision on Twitter, Mr Yaalon said: "I informed the PM that after his conduct and recent developments, and given the lack of faith in him, I am resigning from the government and parliament and taking a break from political life."
The two men had publicly disagreed after Mr Yaalon backed a senior military figure who had made controversial remarks about perceived extremist trends in Israeli society on Holocaust Day earlier this month.
Right-wing political figures have also criticised Mr Yaalon for backing a decision to charge an Israeli soldier who killed a wounded Palestinian attacker in March, in a case which split opinion in Israel.
At a news conference on Friday, Mr Yaalon said: "I fought with all my might against manifestations of extremism, violence and racism in Israeli society, which are threatening its sturdiness and also trickling into the IDF [Israel Defence Forces], hurting it already," Haaretz newspaper reports.
If Mr Lieberman's appointment is confirmed, it will mark a return to government for the controversial politician who stepped down in 2012 when he was investigated for breach of trust. He was charged and later acquitted.
Moldovan-born Mr Lieberman, who lives in an Israeli settlement in the occupied West Bank, advocates a tough line towards dealing with the Palestinians, including the overthrow of Gaza's Hamas rulers.
France recently announced it would host an international conference on 3 June to try to revive Israel-Palestinian peace talks, which collapsed amid acrimony in 2014.
Correction 27 May 2016: The number of seats held by Yisrael Beiteinu has been changed to five, rather than six as stated in an earlier version.