Lawmakers voted 63-32 in the 120-seat parliament in the third and final vote after an 18-hour discussion.
Knesset Member Shelly Yacimovich (Labor) was the only coalition member to vote with the opposition, claiming that the dual-year budget was "an economic and social error, a faulty adventure and a perpetuation of the Treasury's dictatorship."
The government had adopted a dual-year budget for 2009 and 2010 after it took over last April.
A dual-year budget eases pressure on Israel's fractious coalition government since political wrangling over budgets, which in the past were annual, has threatened the stability of previous Israeli coalitions.
Under Israeli law, failure to pass the current year's budget by the end of March would automatically trigger new elections.
Meretz Chairman Chaim Oron said in response, "The insistence on passing the budget in its bi-annual format is indicative of the cabinet's desire to evade public discussion and shows that it sees democracy as an obstacle."
On the other hand, Knesset Member Ofir Akonis (Likud) said, "Common sense and the benefit of the economy overcame stunts by the Opposition, which tried to knock down the move based on absurd and baseless claims."
Last week, International Monetary Fund Managing Director Dominique Strauss-Kahn told an IMF-World Bank meeting that a dual-year budget leads to "stability and long term planning."
"Since moving to a dual-year budget tends to aid the continuation of managing countries' economic policies we will recommend to IMF members to adopt it," he said.
Amnon Meranda contributed to this report