Israel's government is the largest shareholder in Leumi, Israel's second largest bank, with a 6 percent stake.

Lapid said that at this time, it is inappropriate and unethical to approve salaries of 130,000 to 183,000 shekels (£22,439 to £31,585 pounds) a month and severance pay of up to 250 percent.

"The state must make its voice clearly heard in calling to set clear, defined boundaries for bank managers," Lapid said. "I am in favour of rewarding excellent managers, I am in favour of bonuses that will provide incentives for success but in this case, we need to tell the bank's senior managers: 'You've exaggerated!'"

(Reporting by Steven Scheer)