The Israeli cabinet has approved a plan which could increase taxes on mining firms from the current 23% to between 46% and 55%.
In October, a government-appointed committee proposed a 25% tax after companies reach an annual return on investment of 14%, which would increase to 42% for a return above 20%.
The move would affect the country's largest mining company, Israel Chemicals, which excavates potash and several other minerals from the Dead Sea.
Israel Chemicals said it will cancel the company's planned investments worth $657m and reevaluate a further $319m.
The company said it will transfer the investment monies to other operations around the world, near its magnesium facility to speed-up efficiency plans at its factories in the Negev.
Israeli Minister of Finance Yair Lapid, the head of the socioeconomic cabinet, was quoted by Reuters as saying: "We do not want to harm plants but rather ensure...that the money does not stay with the wealthy few but is returned to the public."
The Manufacturers Association of Israel asked the socioeconomic cabinet to reject the panel's recommendations.
Manufacturers Association of Israel president Zvika Oren was quoted by the news agency as saying: "They will almost certainly halt investments and reduce industrial activity in the Negev, adding that the proposals must be examined further.
"This is to prevent any possible damage to industry and jobs in the [southern] region."
The proposal is subject parliamentary approval.