The Knesset's Ethics Committee decided to suspend Arab MKs Haneen Zoabi and Basel Ghattas from meetings of the Knesset and its committees for four months, while MK Jamal Zahalka will be suspended for two months.
The three Joint List members faced disciplinary action after meeting with families of terrorists who murdered Israelis, and advertising the existence of the meeting on social media.
The MKs will still be able to vote at the Knesset and its committees.
The Joint List issued a statement rejecting the decision to suspend the MKs, and condemned "the campaign of incitement led by Netanyahu, which led to the miserable, anti-democratic and unethical decision of the committee."
The party went on to say that "The vengeful punishment will not deter us and we will continue fighting against policies of racism and fascism, and in favor of true equality and true democracy, which Netanyahu is trying with all of his power to destroy."
The party noted that "even after the suspension we continue to demand to immediately release the bodies held by police."
"We know we are paying a political price for an ethical position," Zahalka told Ynet. He said his party will approach international bodies about the suspension.
During a Joint List faction meeting at the Knesset earlier on Monday, MK Zahalka defended himself, saying he is certain that he and his fellow Balad party members did nothing illegal in attending the meeting.
Zahalka said they met with the families of the terrorists in order to promote the return of their sons' bodies for burial. He presented a list of police demands given to the families, saying Zoabi then passed on to Public Security Minister Gilad Erdan the list of the demands the families agreed to.
"At the meeting, held in a culture club in East Jerusalem, we received information from the families on their agreement with the police. Haneen Zoabi presented this list. The aim was to transfer the information to the police, not to hide anything. The only aim was the return of the bodies, the rest is lies. All the other matters have no basis in reality. We call for the return of the bodies immediately," Zahalka said.
"The fact that corpses are being held in a refrigerator for four months is a terrible thing. Not only Arab Knesset members - anyone with a trace of conscience should rise up against this," Zahalka added.
Later, at the Knesset plenum, Prime Minister Benjamin Netanyahu addressed the issue, saying: "We will not accept a situation in which members of Knesset support the families of the murderers of Israeli civiians, and stand in memory of those who murdered our children. There's a limit. There's such as thing as national respect."
The Arab MKs responded by calling out "Liar, fascist and inciter. He lies over and over again."
"I'm trying to imagine," Netanyahu continued, "what would've happened at the British parliament if British MPs stood in memory of Jihadist John, or if American Congressmen stood in memory of the murderers from California."
Zahalka was removed from the plenum after ignoring three calls to order.
Opposition leader Isaac Herzog went up to the podium to speak after the prime minister, and also slammed the Arab MKs. "Not too long ago, MK Zahalka has accused my party of forming the State of Israel. MK Zahalka also defended the minute of silence in memory of these heinous terrorists, and MK Zahalka and his friends justified quite a few of these actions and crossed the line."
Earlier in the day, Bayit Yehudi leader Naftali Bennett said that the Joint Arab List MKs "have made themselves the successors of Haj Amin al-Husseini. This attitude of joining our worst enemies is what brought disaster upon Israeli Arabs 67 years ago. It's not too late to wake up. They must reject from within them the instigators of these acts, the murderers of women, men and Jewish children; if they do not do it, Israeli democracy will have to defend itself."
Also Monday, the government supported a bill that would allow a lawmaker to be suspended by a 90-vote majority in the 120-seat parliament. The bill, which still needs to pass a series of readings to become law, would provide for the suspension of anyone whose behavior is deemed "unbecoming" for a parliamentarian.