The vote could set the stage for a showdown between Prime Minister Benjamin Netanyahu and hardline Jewish settlers and their supporters in his government.
The Supreme Court has said the Ulpana outpost is illegal because it was built on private Palestinian land and must be demolished by July 1. Parliamentary hard-liners submitted Wednesday's legislation in a bid to leave the outpost's five apartment buildings intact and instead compensate the Palestinian landowners.
Netanyahu opposed the legislation. Instead, he wants to uproot the buildings and physically move them to a nearby settlement.
Hard-liners oppose the demolition or move of the homes.
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