"In a meeting with heads of the coalition parties, Prime Minister Benjamin Netanyahu agreed on formulating a bill that would enable the Knesset (parliament) to suspend a member over inappropriate conduct," a statement read.
Such a suspension would need the approval of 90 out of the parliament's 120 members.
Netanyahu's declaration came after three Arab Israeli lawmakers visited relatives of Palestinians killed after attacking Israelis, drawing harsh condemnation from most of the political establishment.
Basel Ghattas, Jamal Zahalka and Hanin Zoabi of the Balad party attended a meeting initiated by a Palestinian committee seeking to retrieve the bodies of attackers killed by Israeli security forces.
While the bodies of Palestinians from the West Bank killed attacking Israelis are returned within hours or days, Israel currently retains those from east Jerusalem, saying this discourages violence.
A wave of violence that erupted last October has claimed the lives of 165 Palestinians, 26 Israelis, an American and an Eritrean.
Most of the Palestinians were killed carrying out attacks, while others died during clashes and demonstrations.
Of the Balad visit, Netanyahu earlier on Sunday said he would "examine new and reinforced legislative changes to ensure that anyone who acts in this direction will not serve in the Israeli Knesset".
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He also asked that Attorney General Avichai Mandelblit examine the legality of the MPs' visit.
The justice ministry said on Sunday that Mandelblit had requested that police collect information to determine whether a crime had been committed.
Channel 2 political reporter Amit Segal said he doubted the feasibility of legislation that would allow parliament to suspend a member.
Such a provision already exists for the president and the Knesset speaker, but while the latter are chosen by parliament itself, "a Knesset member is elected by the public", he said.
"That's what the High Court of Justice will say when it strikes down the law," Segal wrote on Twitter.
The only way to currently suspend or disqualify a member of parliament is if he or she is convicted of a crime.
Also on Sunday, Zoabi was given a six-month suspended sentence for insulting police officers and ordered to pay a fine of 3,000 shekels ($770, 690 euros) for calling two Arab Israeli police officers "traitors" in 2014.
Arab Israelis hold Israeli citizenship but largely sympathise with the Palestinian cause.